What Happens at the End of Term Life Insurance Policies?

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If you’ve bought life insurance before, chances are an agent explained the different types you were able to choose from. They probably told you about the permanent types of life insurance that have a level monthly premium that you pay for your entire life, such as whole life, universal life, and variable life.

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They may have also told you about term life insurance and how the premium stays level for a specified time period and then increases as you get older. 

Many people choose to buy a permanent policy when they want the premiums to remain the same for the life of the policy and to fund the savings element of the policy. Others select term insurance because they only need it for a certain period of time (like the duration of a mortgage obligation) or they want to have as low a premium as possible.

Since a term life insurance policy is only in force for a set number of years (one, five, ten, twenty, or more), you might be wondering what happens at the end of a term life insurance policy. Does it automatically expire? Can you renew it? Can you convert it to a different type of life insurance?

If you’re looking for an answer to these questions and more, keep on reading.

Does Term Life Insurance Always Expire?

Though many people think it does, the short answer is “no,” term life insurance does not expire. 

Term life insurance comes in a number of flavors. One kind is known as “Annual Renewable Term (ART).” ART renews each year, though at a higher monthly premium because you’re a year older.

It renews automatically unless you tell your agent or the life insurance company that you want to cancel. You also don’t have to endure another medical exam with ART as your insurability is not a factor in the renewal.

Another type of term life insurance that is not subject to automatic expiration is a “convertible term” policy which allows you to convert your term policy to a permanent policy. This can happen so long as the policy provisions have been maintained and you’re current on your premium payments.

With a convertible term policy, you also don’t need to undergo any new or additional screening, so the conversion is guaranteed.

Convertible term life can be an option for someone that wants the lower premiums provided by term life insurance. Selecting a convertible term policy also gives you the option to convert to a permanent policy down the road as your insurance needs and financial resources change.

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Do You Get Your Money Back If You Outlive Your Term Life Insurance Policy?

That depends on the type of term life insurance policy you purchased.

If you are issued a “Return of Premium” term life insurance policy, you’ll get back all the money you spent as premiums on your policy under two conditions:

  1. You outlive the level premium term. This means you can’t get your money back fifteen years into a twenty-year level term policy; you have to wait and keep paying your premiums for the full twenty years. 
  2. You’re willing to pay a higher monthly premium for your policy. There’s always a catch! Yes, the insurance company is going to charge you more, but at least you’ll get back more money when your term expires. You can think of the extra premium as forced savings earning no interest.

If you have one of these types of term life policies, you won’t be getting the money you paid for your protection back:

  • Guaranteed level term life
  • Annual renewable term
  • Decreasing term life
  • Modified term life
  • Convertible term life

As you can see, you have quite a few different types of term life to choose from. Financial planners and life insurance professionals are good sources to visit with and assess your needs.

What Else Happens When Your Term Life Insurance Policy Expires?

Though it’s a bittersweet feeling that you’ve outlived your term life insurance policy, the good news is that you’re still alive. In this case, the insurance company will send a notice letting you know that your term policy is expiring and that you’ll no longer be covered past a specified date. 

An agent from your insurance company may likely be contacting you upon expiration of your policy. You’ve been a paying customer for years, and they won’t want to lose you. They can explain your options to you, and you can decide how you’d like to proceed.

If you no longer need life insurance as a result of paying off your mortgage or your kids have completed their education, you don’t need to do anything. If you still need coverage, the agent can walk you through your options.

What Can You Do if You Still Need Coverage After Your Term Life Insurance Policy Ends?

Your term policy may have come to an end, but you do have options if you still need coverage. You can:

Extend your current policy

You can usually keep renewing your policy on a year-to-year basis at a rate reflecting your new age on your birthday. Most term policies have a guaranteed renewability clause in their policy.

This means that you can extend your coverage without having to medically qualify again, which is also a plus in the event your health history has changed. The premiums will increase annually, so the cost may become prohibitive as you get older.

Convert from term life to permanent life

If you have a renewable term life policy, you’ll have the option of converting it into a permanent type of policy, such as whole life or universal life, without proving your insurability. Permanent policies will provide you with peace of mind knowing that your premiums won’t increase and the death benefit is guaranteed.

You may want to read about this clause carefully in your contract since there will be some fine print you’ll need to know about.

Get a different type of policy

Maybe you purchased a 30-year policy many years ago, but your needs have changed, and now you only need a 10-year policy. Or maybe your kids have left the nest and don’t rely on you financially, inspiring you to lower your death benefit from $250,000 to $100,000. Finding the best life insurance policy can be done online, or you can work with an agent directly.

Which Type of Term Policy Is Best?

Unfortunately, there’s no one-size-fits-all type of term life insurance policy, so you’ll need to select the one that matches your individual needs.

There are three key questions to ask when you’re shopping for a life insurance policy:

  1. How much life insurance do I need (and this is likely to change over time)?
  2. Why do I need life insurance?
  3. How long do I need life insurance?

Some life insurance experts often recommend having a term policy combined with a permanent policy. The term component of the combination provides the higher face amount (or value) and a lower premium.

The permanent policy has the advantages of level premiums for life and a policy that you can keep for your whole life, whereas your term policy is very likely a temporary solution to a temporary need.

Which Is Better: Term Life or Whole Life?

Actually, neither. While term life is perfectly sufficient for most people who need life insurance, whole life can also be very beneficial in certain situations.

You should choose term life insurance if you only have a temporary need for life insurance, such as the years you’re paying off your mortgage or raising children. Or perhaps you have a limited budget and want the most affordable type of coverage.

Lastly, you should consider it if you want to save money now, but want to convert to a permanent life insurance policy in the future. Most term policies can be converted to permanent policies, but the deadline varies by policy.

By contrast, you should choose whole life insurance if you want to provide money for your heirs to pay estate or inheritance taxes when you die.

Whole life insurance is also beneficial if you have a child with a disability or another relative that will be a lifelong dependent. Whole life insurance can fund a trust that will provide care for your dependent after you’ve passed away. An attorney and financial advisor can help you set up the trust.

This type of insurance also helps you if you want to accumulate money in your life insurance policy when you pay premiums. You are then able to spend that money during your retirement years while at the same time leaving an inheritance or funds for final expenses, like funeral costs.

Finally, if you want to equalize inheritances, whole life insurance can be the right choice for you. If you’re planning to leave a business or real property to one child, a whole life policy can provide an equivalent sum for your other children.

Are There Other Life Insurance Options?

If you need more than the temporary coverage which term life provides and you also want more savings and investing options than whole life provides, you may want to consider these other types of permanent life insurance:

  • Universal life insurance pays interest on your cash value based on current market rates - similar to those used to determine mortgage interest rates.
  • Variable life insurance has a savings component that is tied directly to the stock market. Variable life can provide you with better cash accumulation if the market is doing well, but you can also have cash value depleted during downturns in the market. 
  • Indexed universal life pays interest solely based on the movement of stock market indexes, like the S&P 500.

Learning About End of Term Life Insurance Policies

Doing your research on term life insurance and what happens at the end of a term life insurance policy can help a lot. In the end, you can be a smarter consumer when choosing to purchase a policy or decide what to do before your existing policy ends. A life insurance policy is a very important asset, and you’ll sleep better knowing you’ve got all your bases covered.

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