When you buy a term life insurance policy, you agree to pay a fixed premium for a fixed period of time called a term, typically between ten to thirty years. You will also choose a coverage amount and name the beneficiaries of your policy.
If you die with a term life insurance policy in force, your beneficiaries can file a death claim to get a life insurance payout.
But what happens if you outlive your term life insurance policy? In short, your policy expires, and you no longer have coverage — but you do have options.
What Should You Do When Your Term Life Insurance Expires?
Term life insurance is the most purchased type of life insurance. While other forms of life insurance may offer permanent coverage and a cash value component, term life insurance is less expensive , making it a viable option for many people.
Outliving your policy is arguably good news. You have celebrated some birthdays, gained wisdom, and likely experienced a number of significant life changes.
Some people reach the end of a term life insurance policy and determine they no longer require coverage. If your kids are grown, your house is paid off, and you've got a little nest egg built for retirement, you might decide to forgo life insurance.
However, many people continue to need coverage after their term life insurance expires. Second mortgages, having children later in life, or the desire to provide some financial protection for a spouse can all be reasons to look for life insurance coverage after a term life insurance policy expires.
Option 1: Extend Your Current Term Policy
Some term life insurance policies have a guaranteed renewability feature called a rider that is attached to the policy. This rider allows policyholders to extend their coverage without going through the underwriting process all over again. With this option, you can renew your term policy annually and keep the same death benefit.
However, most people don't go this route because the policy's premium can, and usually does, increase with each annual renewal.
Extending Your Term Life Insurance Policy: Advantage and Disadvantage
Advantage: If you have had significant health issues or a serious diagnosis, you may not qualify for a new life insurance policy with the death benefit you currently have. A guaranteed renewability would allow you to keep your current policy without underwritings or submitting a medical exam.
Disadvantage: What happens when term life insurance expires and you decide to extend your policy? Your premium typically goes up with age and each year of renewal. This consistent rate hike could deter you if you are expecting the same rate as your old policy.
Option 2: Convert Your Term Policy to a Permanent Policy
Insurance policies with conversion riders have specific regulations. If you're considering this option, check in with your insurance agent — many insurance companies only allow policyholders to convert within a certain time period or before a certain age.
It is important you understand what happens when a term life insurance policy expires and is converted to a permanent policy. Permanent policies provide coverage for life.
Most permanent policies include a cash value feature. You can use the cash value on your policy to pay your premium, take out a life insurance loan, or make a withdrawal. If you get to the point where you no longer need coverage, you can also surrender your policy to get your cash value (less fees).
Converting a Term Life Insurance Policy to a Permanent Life Insurance Policy: Advantage and Disadvantage
Advantage: Converting a term policy to a permanent policy typically does not require proof of insurability or a medical exam, making it another good option for insured people with health concerns.
Disadvantage: Permanent life insurance policies are always more expensive than term policies with the same coverage amount. If you convert your term policy to a permanent with the same death benefit, your premium will be higher with permanent coverage.
Option 3: Buy a Different Life Insurance Policy
Think back to when you purchased your current life insurance policy. Are the reasons you bought this policy still the same? Perhaps a million-dollar policy made sense when you were younger, but today you are more focused on final expenses and leaving a legacy.
When your term life insurance policy expires, you have the option of buying a new policy with a coverage amount that aligns with your current financial circumstances.
Getting a New Term Life Insurance Policy: Advantage and Disadvantage
Advantage: You can buy a term life insurance policy that fits your current coverage needs with a term period that makes sense for you and your loved ones. With this option, your insurance rate is locked in for the policy term you selected.
Disadvantage: A new term life insurance policy requires underwriting, which can include submitting a medical exam. Even if you're healthy, your premium will likely be higher than it was on your expired term life insurance policy because you are older and life insurance rates increase with age.
What Do You Need to Know About Riders?
Some insurance companies sell extra coverage or features called riders. Life insurance renewal and conversion riders are added to policies at an additional cost. Bestow does not offer riders on term life insurance products, but if you are working with an insurer that does, it’s a good idea to research the cost and benefit of the rider you are considering.
Apply for Term Life Insurance with No Medical Exam
Ready to apply for a new term life insurance policy? It's ridiculously easy with Bestow. The application is 100% online and there is no medical exam whatsoever.
- Those who are wondering what happens when term life insurance expires have a few options to choose from: renewal, conversion, or purchasing a new policy.
- Annually renewing a term life insurance policy allows you to keep your death benefit, but be prepared to pay a higher premium each year because the cost of insurance increases with age.
- If you convert your term life insurance policy into a permanent policy, your coverage will not expire as long as you make your premium payments, but your insurance rate will likely increase because permanent policies are more expensive than term policies.
- Buying an all new life insurance policy allows you to select a term and coverage amount that make sense for your life now. If your death benefit is greater or the same as your expired policy, your premium payment will probably go up as insurance rates increase with age.