Outliving your term life insurance is a good thing and a bad one. On the one hand, it means you remained in good health throughout your policy term. On the other hand, there will no longer be coverage at the end of the policy.
Many policyholders wonder what will happen next: Will you lose all the premiums you have paid? Can you keep some coverage? Understanding the outcomes of having a term policy expire will help you plan for your overall financial security well into the future. Keep reading to find out what happens when a term policy expires.
What Does “Outliving Term Insurance” Actually Mean?
Outliving your term insurance means you reached the end of your policy’s specified coverage period while still alive, which means the benefits of your policy are gone without any payout. Because term insurance usually only pays a death benefit on a policy if the insured dies during the coverage period, to outlive your term insurance means the coverage ends.
You can either go through a renewal process, convert the term to a permanent policy, or simply allow the policy to lapse. The appropriate action will depend on your financial needs and health circumstances.
What You Get – And Don’t — After Term Life Insurance Ends?
Outcomes can vary when your term life insurance policy expires based on the type of policy you had purchased and the options you selected. Here is a list of what you do get and what you don’t get:
What You Get
You Can Renew The Policy: Most insurers let you renew your term policy when it ends. But renewal is offered at a higher premium – the new premium is based on your age at renewal (and perhaps your health at the time). Renewal allows you to extend the coverage, but often it becomes prohibitively expensive as you age.
Option To Convert To Permanent Coverage: Many term insurance plans include a built-in feature to convert the policy to permanent life insurance. The conversion usually does not require a new medical exam, which is helpful if your health has changed over the years. Converting provides coverage for your entire life, which will build cash value in many instances.
Return of Premium (if applicable: If you bought a term plan with a return of premium (TROP) feature, you can recover the part of the premium you paid during the coverage period. You will pay substantially more in premiums than for traditional term insurance. Still, you would recoup the premiums you paid at the end of the policy, minus taxes and applicable charges, and you would be able to benefit from a loss of use of your premiums while insured with this plan.
What You Don’t Get
Death Benefit Payout: A death benefit is the primary feature of term life insurance. There will be no death benefit payment if you outlive your policy term. This is why term insurance is often called pure protection, because its benefit is only paid if you die during the coverage period.
- Premium Refund on Standard (Regular) Plan: If you purchased a regular term policy and did not get a return of premium rider with it, you will not get your money back at the end of the policy. Any premiums you have paid are the cost of the insurance coverage during the period.
- Continued Coverage for Policy: Your coverage does not continue once the policy has expired unless you are proactive by renewing and/or converting your policy. Therefore, you will have no coverage, and if something unexpected happens after the expiry, there is no claim payment.
Can You Extend or Renew a Term Life Policy?
Yes, you may be able to extend or renew your policy, but it depends on the insurance company and your policy’s terms. Generally speaking, if you renew your policy, you will be paying a higher premium since your premiums will now reflect your age and your health at that time.
Here are a few things to know before making your decision:
- Higher Premium: The premium you pay during renewal is based on your age at the time of renewal. As you get older, it will cost more to have coverage.
- Medical Conditions: Some insurers allow guaranteed renewal with no medical exams, while others may ask you to share updated health conditions before the renewal is granted.
- Short-term Safety Net: Renewing may offer temporary protection if you have residual financial obligations (e.g., a mortgage, dependent children or debts).
- Affordability Issues: Renewed policies are often much more expensive, so you’ll have to compare to determine whether paying more premiums would be worthwhile than looking for a new policy.
At this point, many people still gauge how much they spend on different insurance types. For example, premiums for a renewed life policy can change drastically compared to the annual cost of a good health insurance plan, and it can often be more financially sound for us in protecting ourselves from unnecessary hospital bills and surprise medical fees.
Options After Term Expiry – What Should You Do Next?
When your term life policy expires, you have some significant decisions to make. If you plan well, you can maintain your coverage without interruption. Here are the primary alternatives:
- Renew the Policy – You can choose to renew for another term. You may have higher premiums as you get older, and your risk profile changes, not just how long you have lived.
- Convert to Permanent Insurance – You can convert to a whole life or universal life policy. You will get your lifelong protection, and possibly that cash value that the term policy doesn’t have.
- Buy a New Term Policy – If your health and age permit you to pay premiums, buy a new term policy and start over.
- Explore Retirement and Investment Plans – Look at investing your money if your dependents are on track financially. Consider investing your money in a retirement or investment plan.
- Reassess Current Financial Obligations – Identify if you still need coverage, especially when you have paid off all your debts, and if your dependents have sufficient ability to take care of finances.
Reaching the end of your term life insurance policy doesn’t signify failure in your financial planning; instead, it highlights the importance of the next decision. By knowing your renewal terms, conversion rights, and other investing alternatives, you can take actions that align with your stage in life. Successful individuals with their original plan can protect their future or find peace of mind beyond the initial term.
