What happens if you outlive your term life insurance?

Term life insurance provides temporary coverage for a set period of time, typically between 10 and 30 years. Term life insurance coverage typically expires if you outlive the term, as opposed to permanent life insurance, which provides lifetime protection in most cases. The only exception is if your term policy is renewable or convertible, which allows you to continue your coverage without purchasing another policy as long as you meet the conversion or renewal deadlines specified in your conversion policy. If you have a term policy or are considering purchasing one, it is important to understand what happens if you outlive the term.

What happens when term life insurance expires?

While term insurance is frequently purchased with the expectation that any dependents will be grown and financially independent by the time the policy expires, this is not always the case.

When term life insurance expires, the policy simply expires, and the policyholder is not required to take any action. The insurance carrier sends a notice that the policy is no longer in effect, the policyholder stops paying premiums, and there is no longer any potential death benefit. If the policyholder had a return-of-premium policy, a check for the amount paid into the policy over its term would be sent.

The exception is if your policy includes a term conversion rider, which allows the policyholder to convert the term policy to a permanent insurance policy as the term nears its end without having to take another medical exam. This option may be worthwhile for people who require coverage but whose health has deteriorated and who may be unable to pass a physical exam. Remember that conversion policies typically have strict conversion deadlines, which are often several months before your policy expires. So, if you have a conversion policy, make sure you know when you need to convert it if that's something you want to do.

Furthermore, some term policies may allow you to renew your term life insurance policy on an annual basis after the initial term expires. If you choose to renew your policy, you will retain the same amount of coverage as before, but you will only be covered for one year at a time. Your premium will almost certainly rise each time you renew your policy, as term life premiums rise with age to account for the increased risk to the insurance carrier.

Purchasing coverage after you outlive your term life insurance

Those who will require additional coverage after the term policy expires should begin evaluating other options six months to a year before the policy expires. You'll have more time to add a term conversion rider to your current policy if necessary.

Term conversion

As previously stated, some policies permit term conversion at the end of the policy's term. This option converts the policy to a permanent life policy without requiring a medical exam. Term conversion policies may have higher rates, but they allow the insured to keep coverage after their term expires if the policy was converted before the policy's stated deadline. Converting rather than purchasing a new policy may be less expensive for many people. While your health status will not be considered in eligibility, your new premium will be determined by your age at the time of conversion.

However, it is critical to understand that convertible term life insurance necessitates proactive planning. Typically, you must apply for the conversion several months, if not a year, before the end of your original term. Furthermore, you must have purchased a policy with a conversion rider in order to have this option in the first place. Conversion is not possible, for example, if you purchase coverage from a company that does not offer permanent policies. Because not all term policies are convertible, it's critical to read your policy documents or consult with an agent to learn more about your options.

Purchase a new term policy

A new term policy may be the most cost-effective life insurance option for those who are relatively young and in good health. Premiums may also be reduced if a much lower death benefit and a shorter term are purchased, which may be a good option for people who require less coverage than when they first purchased their term policy.

For example, if a person's youngest child is still in high school when their 20-year term policy expires, an additional 10-year policy may be enough to ensure that their dependent has completed college and no longer requires financial assistance from their parents' income.

Keep in mind that a medical exam will almost certainly be part of the underwriting process for any new term policy, and if there have been any new health issues since the first policy, the rate will almost certainly increase. Age also plays a role; older people pay more for term life insurance policies.

Purchase a permanent policy

If you do not have a term conversion rider on your policy, you can buy a permanent life insurance policy after your term policy expires. It is critical to remember that permanent life policies, such as whole life insurance, are more expensive than term policies — sometimes ten times more expensive (but it depends on a variety of personal factors and policy choices).

One of the advantages of a permanent policy is that the coverage is valid until death in most cases as long as the premiums are paid. A tax-deferred cash value account is also available with permanent policies. A portion of the premium is invested in an account that grows and can be used as collateral for a loan or withdrawn.

Although the cash value portion is unlikely to earn as much interest as other investments, such as the stock market, it is generally secure and can play an important role in financial planning. Your cash value account will most likely have an interest and return cap, which you can find in your policy documents.

Some experts do not recommend permanent policies for everyone, often due to the cost, but in some cases, these policies may make the most sense. Permanent policies, for example, may be a good choice for someone who has a disabled child who will never be financially independent or a non-working partner who would need assistance maintaining their lifestyle if the working partner died.

Final expenses insurance

In the United States, the average funeral costs $7,640. Final expenses or burial insurance is a type of permanent insurance to consider for those who do not want to burden their heirs with end-of-life expenses and do not require a large payout. Final expense life insurance typically has low coverage limits of around $25,000, making it an unsuitable option for income replacement. Furthermore, premiums are typically very high because no medical exam is required and the insurance company assumes more risk.

Final expense insurance is a good option for older adults whose primary goal is to keep their beneficiaries from facing financial difficulties as a result of their death. It may also be appropriate for people with pre-existing health conditions or those who have previously been denied standard life insurance.