What Happens If I Outlive My Term Life Insurance?
B.A. Risk Management
Life Insurance Agent
When you purchase a term life insurance policy, you're investing in peace of mind for your loved ones for years to come. If you die unexpectedly during that fixed period - typically 10, 20, or 30 years - your beneficiaries will receive a payout that can provide priceless financial security. But what happens if you outlive your policy's timetable? If you try to take out a new policy, your advanced age and deteriorating health might make one less affordable. In some cases, you might not be able to secure one at all.
Rest assured that you still have options to keep your beneficiaries protected. Read on to learn about your options at the end of your life insurance term, including how to renew your policy, how to convert your policy to permanent life insurance, and how to purchase a new life insurance policy later in life.
What Happens When My Term Life Insurance Policy Expires?
When you purchase term life insurance, your beneficiaries will be covered in the event of your death for a set amount of time designated by your policy. Your premiums go to the company to support payouts for those who do die during the term of their life insurance. At the end of your life insurance term, your coverage will end. Any payments you've made toward your policy will be forfeited, as will your coverage payout amount.
Since life insurance is not a savings plan, most people won't need to do anything if they outlive their term life insurance policy. Typically, policyholders only need coverage for a set amount of time in their lives, such as the span of a mortgage or the time their children will be dependents under their care. So, if you outlive your life insurance policy, its use to you might be over.
However, some people may still have a need for life insurance after their term policy expires. For instance, if you're the primary breadwinner in your household, your loved ones may not be able to make up your lost income in the event of your sudden death. You might also want to give your loved one's peace of mind to cover your funeral expenses. Whatever your need, you'll want to plan ahead with one of these options if you still need life insurance.
Renewing Your Term Policy
Renewing your policy at the end of your life insurance term is usually your easiest choice if your insurer offers renewal options. This could also be your smartest choice if you're in poor health when your policy ends. Since you've already established your policy relationship with your life insurance company, you'll still be guaranteed coverage if you renew at the end of your term. However, in most instances, you'll pay much higher rates for your renewed policy.
Check with your insurer ahead of time to see what your options for renewal are under the terms of your current policy.
Buying a New Term Policy
If your policy term is short—say, 10 years instead of 30—and you're still in good health when your term expires, buying a new policy might be your best bet if you still need coverage. This is usually best for policyholders under 70 who are still in good health.
Remember that you'll still need to complete all the steps you took when you took out your current policy, including a new application and a new medical exam. Your insurer will look at your complete medical history to make sure you're a good risk for insuring and will review past application information with the Medical Information Bureau (MIB). Keep in mind that if you're a smoker or have had health problems since you got your last policy, you might have trouble securing a policy. If you are offered one, it might be at a much higher rate than your expired policy.
You'll also need to do all the math you did when you took out your current policy, including figuring out how much your beneficiaries will need and how much you can afford in premiums each month. Shopping around for the best insurance policy rates will still be as important as it was when you took out your current policy.
Once you choose to buy a new policy, you should start your application process as soon as possible in order to avoid a gap in coverage. This will also give you time to regroup if your application is rejected due to age, health, or payment issues over the course of your existing policy. If so, you may still be able to pursue options connected to renewing or converting your current policy before your policy expires.
Converting Term Life Insurance to Permanent Life Insurance Before Your Policy Ends
Most term life insurance policies offer the option to convert to some form of permanent life insurance before the end of your term. Permanent life insurance is an umbrella term used to encompass a variety of life insurance policies with longer coverage time frames. You might see policy types like whole life, universal life, or variable universal life when you're looking for this kind of coverage.
Though permanent life insurance policies are typically more expensive than term life insurance policies, most allow you to build up cash value from your policy account that you can withdraw during the course of your policy. They also provide longer coverage, so you and your beneficiaries can rest assured that there will be coverage in the event of an emergency decades in the future.
Most term life insurance policies offer a built-in option called a term conversion rider, which lets you easily convert your policy at the end of your term. If you convert your term life insurance policy to permanent life insurance, you can expect to pay 5 to 15 times more in premiums than you were previously paying for term life insurance. However, if you convert to permanent life insurance at the end of your term life insurance, you'll likely be a decade or two older than you were when you took out your policy. Whatever expenses you originally purchased the policy for will likely be paid off, and you'll likely have a more stable career and better financial situation than when you first took the policy out.
Since you'll be keeping a policy with your current life insurance company, you most likely won't have to go through a new application process. Your new permanent life insurance policy will be rated at your current age, but you typically won't have to go through a new medical exam. This option might be a great choice if your health has declined since you took out your policy and you're worried about getting insured with a new company.
Canceling Your Policy
Depending on your reasons for taking out your policy, you might not need life insurance anymore at the end of your term. Maybe you've built up enough of a savings plan since you took out your policy that your family will be financially stable in the event of your death, or maybe you only purchased your policy for peace of mind during a specific life event, such as the term of a mortgage. In those instances, you might be just fine letting your policy expire. Once you've paid your final premium payment, you won't need to do anything else. You won't owe anything after your policy expires, and your coverage will end.
You'll want to weigh the risks for your beneficiaries if you choose this option, though. Even if you have a nest egg to cover lost income, your life insurance policy may still be important in helping your family cover your funeral costs and other death expenses. Just like when you took out your policy, you'll want to take a look at your financial needs and determine what the best option is for both you and your loved ones.
In some instances, you may also be able to secure a life insurance policy with a return of premium (ROP) rider. If you have an ROP rider, you'll be able to get your premiums returned to you in a lump sum at the end of your term. You'll typically pay much higher premiums than you would for a standard policy, but unlike with most policies, you'll be able to get your premiums back. Check with your life insurance company to see if ROP riders are offered and what your premiums might look like for this option.
You might also have the option to do a partial conversion on your current policy, which can help you retain some coverage when your policy ends. This can be a great option if you don't need large sum coverage for your beneficiaries anymore, but you still want to guarantee a smaller payout for things like funeral expenses. Check to see what options your insurer offers for partial conversions.
No matter what you decide to do when your term life insurance policy ends, you'll want to have your plan in place with plenty of time before your coverage ends. Six months is the recommended amount of time to start planning, in order to make sure you won't experience a gap in coverage. Contact your life insurance company to see what conversion or renewal options are available to you, or use our free life insurance quoting tool to compare rates from new companies today.