Wednesday, October 17, 2012

Outliving Your Insurance

While it may seem counter intuitive, it is possible to outlive your life insurance policy. A lot of folks buy term plans with premiums that are level for 10, 20, even 30 years. But when that lock-in period expires, rates go through the roof. Often, we're much older and not necessarily in great health, making it more difficult - and expensive - to buy a new plan.

No problem, Henry, by that time my mortgage will be paid off, kids will be out on their own, and my 401k will be bursting with cash. I'll no longer need any life insurance.

Maybe, maybe not.

But as FoIB Jeff M tips us, you may be in for an unpleasant surprise:

"It is a fact that when the price guarantee ends on a level term insurance policy, the premiums skyrocket ... the only people who continue the policy beyond the price guarantee period are those who can't qualify for a new level [plan]."

Which isn't to say that term plans are bad: just that you need to know the pitfalls. And many (most?) plans are "convertable," meaning that you can trade them in for a permanent plan with premiums that never go up, even if your health has declined.

Nice to know.
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