Term life insurance provides temporary coverage for a certain period of time, often between 10 and 30 years. Unlike a permanent life insurance policy, which offers lifetime protection under most circumstances, term life insurance coverage generally ends if you outlive the term. The only exception is when 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 terms of your conversion policy. If you have a term policy or are thinking of buying one, it can be helpful to know what happens if you go over the term.
what happens when term life insurance expires?
Although term coverage is often purchased with the assumption that dependents will grow up and be financially independent by the time it expires, that is not always the case.
Usually, when term life insurance expires, the policy simply expires and the policyholder does not need to take any action. the insurance company sends a notice that the policy is no longer in force, the policyholder stops paying premiums, and there is no longer any potential death benefit.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 would be sent to them for the amount paid on the policy throughout its term.
The exception is if there is a term conversion rider in your policy, which allows the policyholder to convert the term policy to a permanent insurance policy as the term nears its end, without having to have another medical exam. This option may be worth considering for people who need coverage, but whose health has worsened and may not be able to pass a physical exam. Note that conversion policies often have strict timeframes for conversion, often several months before your policy expires. so if you have a conversion policy, make sure you know when to convert if it’s something you’re interested in doing.
Also, with some term policies, you may have the option to renew your term life insurance policy annually after the initial term expires. If you choose to renew your policy, you’ll keep the same amount of coverage you originally had, but you’ll only be covered for one year at a time. Each time you renew your policy, your premium will most likely increase, as term life premiums get more expensive with age to account for the increased risk to the insurance company.
buy coverage after your term life insurance outlives
Those who will need more coverage after the policy term expires may want to start evaluating other options six months to a year before the policy expires. that way, you’ll have time to add a conversion rider to your current policy if needed.
As noted, some policies allow for a term conversion at the end of the policy term. With this option, the policy is changed to a permanent life policy, without the need for a medical exam. term conversion policies may have higher rates, but allow the insured to keep coverage after their term ends, as long as the policy was converted before the stated deadline. For many people, converting rather than buying a new policy can be cheaper. Although health status will not be a variable in eligibility, your new premium will be based on your age at the time of conversion.
However, it’s important to know that convertible term life insurance requires proactive planning. typically, you must request the conversion several months or even a year before the original term end date. Also, you must have purchased a policy with a conversion clause to have this option in the first place. For example, if you buy coverage from a company that doesn’t offer permanent policies, conversion isn’t possible. Since not all term policies are convertible, it’s important to review your policy documents or speak with an agent to learn more about your options.
buy a new term policy
For the relatively young in good health, the cheapest life insurance option may be to purchase a new term policy. Premium costs can also be lowered by purchasing a much lower death benefit and shorter term, which may be a good option for people who need less coverage than when they purchased their initial term policy.
For example, for someone whose youngest child is still in high school when their 20-year policy expires, an additional 10-year policy may be enough to ensure their dependent has completed college and no longer needs financial support. of your parents income.
Keep in mind that a medical exam is likely to be part of the underwriting process for any new term policy, and if new health issues arise since the first policy, the rate is likely to increase. Age is also a factor: Seniors pay more for their term life insurance policies.
purchase a permanent policy
Another option for those who do not have a term conversion rider in their policy is to purchase a permanent life insurance policy after the term of the policy expires. It’s important to note that permanent life policies, such as whole life insurance, are more expensive than term policies, sometimes up to ten times more expensive (but it depends on a variety of personal factors and policy options). /p >
One of the benefits of a permanent policy is that the coverage is valid in most circumstances until death, as long as the premiums are paid. permanent policies also have a tax-deferred cash value account. a portion of the premium is put into a savings vehicle that grows and can be used as collateral for a loan or withdrawn.
Although the cash value portion may not earn as much interest as other investments, such as the stock market, it is generally safe and can play a key role in financial planning. your cash value account will likely have an interest and return limit, information that can be found in your policy documents.
Some experts don’t recommend permanent policies for everyone, often because of cost, but there are certain circumstances where permanent policies may make more sense. For example, permanent policies may be a good option for someone who has a child with a disability who will never be financially independent, or a non-working couple who would need help maintaining their lifestyle if their working partner dies.
final expense insurance
The average cost of a funeral in the United States is $7,640. For those who don’t want to burden their heirs with end-of-life expenses and don’t need a significant payout, one type of permanent insurance to consider is final expense or burial insurance. Final expense life insurance typically has low coverage limits capped at around $25,000, so it’s not the best option for income replacement. In addition, the premiums are often very expensive because a medical exam is not required and the insurance company assumes more risk.
Final expense insurance can be a good option for seniors whose primary goal is to prevent their beneficiaries from facing the financial challenges associated with their death. It may also be suitable for people with pre-existing health conditions, or those who have been denied standard life insurance in the past.