How To Get Money From Expired Life Insurance Policies

Term life insurance is a temporary product with an expiration date. When term life insurance expires, the policy's coverage ends, and you stop paying premiums. If you have outlived your term life insurance policy, you will no longer have coverage. However, you may be able to extend your current policy or buy a new one. You can also convert your term life policy into a permanent one or renew your term coverage. It's important to note that you typically cannot get your money back after your term life insurance expires, unless you have a return-of-premium rider.

Term life insurance explained

Term life insurance is the simplest form of life insurance. It is a contract between the policy owner and the insurance company. The owner agrees to pay a premium for a specific term, and in return, the insurance company promises to pay a death benefit to the beneficiaries upon the death of the insured. This benefit is usually income tax-free.

Term life insurance provides coverage for a specific period, typically ranging from 10 to 30 years. The policy has no cash value and does not feature a savings component. The premiums are based on the policy's value, the insured person's age, gender, health, and life expectancy. The insurance company may also inquire about the insured person's driving record, current medications, smoking status, occupation, hobbies, and family history.

The most common type of term policy is a level term policy, which means that the value of the death benefit and the price of the premiums stay the same for the entire duration of the policy. There are also yearly renewable term policies, which cover the insured person for a year at a time and can be renewed without a medical exam, but at a higher cost. Another type is the decreasing term policy, which has a death benefit that declines each year according to a predetermined schedule.

If the insured person dies during the policy term, the insurer will pay the policy's face value to the beneficiaries. This cash benefit may be used to settle healthcare and funeral costs, consumer debt, mortgage debt, and other expenses. However, beneficiaries are not required to use the insurance proceeds to settle the deceased's debts.

If the policy expires before the insured person's death, or they live beyond the policy term, there is usually no payout. However, some policies offer the option to renew on a year-by-year basis or convert the policy into permanent coverage. The premiums for renewed or converted policies are typically much higher.

What happens when term life insurance expires?

Term life insurance is a temporary product with an expiration date. When term life insurance expires, your coverage ends, and you stop paying premiums. If you die after the policy has expired, there will be no payout to your beneficiaries.

If you still need life insurance coverage, you can either buy a new term life insurance policy or convert your existing policy into a permanent one.

Buying a new term life insurance policy

If you are in good health, buying a new term policy will likely be the most cost-effective way to continue coverage. You can choose a coverage amount and term length that fits your current needs. For example, if you have nine years left on your mortgage, a 10-year policy might make sense.

Your rates will be higher as you are older now, and any new medical conditions will also affect your life insurance costs. You will also likely need to take a new medical exam to get coverage.

Converting your existing policy into a permanent policy

Many term life insurance policies include a conversion rider that allows you to change your term policy into a permanent policy without going through underwriting again. This means you will not need to take a medical exam and can keep your original health rating.

However, permanent life insurance is much more expensive than term life insurance, so your premiums will increase. You may be able to opt for a partial conversion to make this transition more affordable.

Extending your current policy

Some term life insurance policies offer the option to renew on a year-by-year basis after the initial term expires. This option can be useful if you develop health issues that make obtaining new insurance challenging. However, the premiums will be higher each year due to age-related risk increases.

Can you get a refund on term life insurance?

Term life insurance is a temporary product with an expiration date. Once the term ends, your coverage ends, and you stop paying premiums. You will not get a refund on term life insurance unless you have purchased a return-of-premium rider or return-of-premium term life insurance.

Return-of-premium rider

A rider is an additional benefit to your insurance policy that you can usually add for free or purchase for a one-time fee. A return-of-premium rider will ensure that all of your premiums are refunded to you after your term expires. If you cancel your policy before your term ends, this rider also allows you to recover a percentage of the premiums you paid.

Return-of-premium term life insurance

Return-of-premium term life insurance refunds your premiums when your coverage ends. This type of insurance is 30% more expensive than traditional term life insurance.

Other options

If you want to get money back from your term life insurance, you can adapt your policy. You may want to use a return-of-premium rider to make your term life plan into a savings account. On the other hand, you may prefer the low rates of term life insurance when you are young and then convert to whole life insurance when you are older.

Cancelling your policy

The only way to get money back from traditional term life insurance is to cancel during the free-look period, which is usually 10 to 30 days from when your coverage began. If you cancel a term life insurance policy within 30 days of purchasing it, the company must refund any money you paid. In addition, if you pay some of your premiums ahead of schedule and then cancel your policy, the company should return those early pre-payments.

What to do when term life insurance expires

When your term life insurance expires, you will no longer be covered, and you will stop paying premiums. If you still have dependents who rely on your income, you may need to extend your coverage. Here are some options to consider:

Extending Your Current Policy

Many term life insurance policies offer the option to renew for a limited number of years without requiring evidence of insurability. This means you can extend your coverage even if your health has changed. For example, a 10-year term policy may be renewable each year for up to 10 additional years. However, your premiums will increase each year based on your current age. While this option can be costly, it is beneficial for those who develop serious health issues as it ensures continued financial protection for your family.

Converting to a Permanent Policy

Some term life insurance policies can be converted into permanent life insurance. This option allows you to change your term policy into a permanent one without going through underwriting again. The premium on the new policy will be higher, but you may have the choice to convert to a policy with a smaller death benefit and a lower premium. Check your policy or contact your insurance company to understand the conversion options available to you.

Buying a New Term Life Policy

If your health hasn't changed significantly, purchasing a new term life policy may be the most cost-effective option. You can choose a coverage amount and term length that suits your current needs. However, keep in mind that you will likely need to undergo a medical exam, and your premiums will be higher due to your increased age.

Buying a Permanent Policy

If you don't have the option to convert your term policy, you can purchase a permanent life insurance policy after your term policy expires. Permanent life insurance policies, such as whole life insurance, are more expensive than term life insurance but offer lifetime coverage and a cash value component. This option may be ideal for individuals with special needs dependents or a non-working partner who would need financial support.

Final Expense Insurance

If you don't require a large payout, you may consider final expense or burial insurance. These are typically whole life policies with smaller payouts, such as $20,000 or $25,000. They often require no medical exam and can provide money for your beneficiaries to use for any purpose.

Going Without Life Insurance

If your term life insurance policy is expiring and you no longer have dependents or significant debts, you may choose to let the coverage end. Assess your current financial situation and future needs to determine if continued coverage is necessary.

Permanent life insurance as an alternative

Permanent life insurance is a good alternative to term life insurance for those who want lifelong coverage and a cash value component. It is a good option for people in certain situations, such as those with special needs dependents or high-net-worth individuals. Here are some key things to know about permanent life insurance:

Types of Permanent Life Insurance

The four most common types of permanent life insurance are whole life, universal life, variable universal life, and indexed universal life. Whole life insurance is the most common type, offering a death benefit along with a savings account. Universal life insurance provides more flexibility, allowing the policyholder to increase the death benefit and alter premium payments. Variable universal life insurance combines the features of variable and universal life policies, offering investment risks and rewards along with adjustable premiums and benefits. Indexed universal life insurance ties the cash value growth to the performance of a broad market index, providing the potential for higher returns while limiting investment risk.

Benefits of Permanent Life Insurance

Permanent life insurance offers several benefits, including lifelong coverage, a tax-deferred cash value component, and the ability to borrow or withdraw funds during the lifetime of the policy. It is also a good option for individuals who may have health issues that make it difficult to obtain term life insurance.

Drawbacks of Permanent Life Insurance

However, there are also some drawbacks to permanent life insurance. The premiums for permanent life insurance are typically much higher than those for term life insurance. Additionally, there is a risk that the policyholder may not be able to afford the high costs of premiums over time, and taking out the policy's cash value can reduce the death benefit.

When to Choose Permanent Life Insurance

Permanent life insurance may be a good choice for individuals who want lifelong coverage and the ability to build savings with tax advantages. It is important to consider your financial situation and goals when deciding between term and permanent life insurance.

Frequently asked questions