Term Life Insurance: Expiry And Renewal Options

Term life insurance is a popular form of insurance due to its affordability and customisable policies. However, it does have an expiry date, and once the policy term ends, the coverage ends. This is typically between 10 and 30 years, though some policies can be as short as 5 years. When the term ends, the policyholder can choose to renew the policy, apply for a new term life insurance policy, convert to permanent life insurance, or cancel the policy altogether.

Term life insurance policies typically last 10-30 years

Term life insurance policies typically last between 10 and 30 years. This is known as the "term length", and is chosen by the policyholder when they take out the policy. This length of time is usually based on how long the policyholder wishes to be covered for, and how long they estimate their dependents will need financial support for.

The benefit of term life insurance is that it is often more affordable than permanent life insurance, as it does not have savings or investment components (known as cash value). However, term life insurance does expire, and once it does, the policyholder will no longer be covered and their beneficiaries will not receive a payout upon their death.

If you outlive your term life insurance policy, you have several options. Firstly, you can choose to forego life insurance altogether and cancel your policy. Secondly, you can renew your current term life insurance policy, although this will likely result in higher premiums. Thirdly, you can convert your term life insurance policy into a permanent life insurance policy, which will provide coverage for the rest of your life. Finally, you can buy a completely new term life insurance policy.

If you are considering letting your term life insurance policy expire, it is important to assess your financial situation and determine if you still need coverage. Do you have dependents? Is your estate sufficient to sustain them? Do you have any pending loans or mortgages? Does your partner depend on your income? An honest evaluation of your finances will help you understand your future needs and decide on the best course of action.

You can extend your policy

If you want to extend your term life insurance policy, it's important to start the process early. Speak to your insurance company, agent, or broker well before your current policy expires. Find out about the types of life insurance policies available, the costs involved, and the specific options available to you.

Most 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 premium will increase based on your current age, and these renewals can become quite expensive over time.

Technically, you can usually keep renewing your policy on a year-to-year basis until you are 95 years old. Most term life policies have a guaranteed renewability feature that lets you extend your coverage and death benefit without going through a new underwriting process or medical exam. However, the insurance company will change your premium if you extend, and this option may not be the most cost-effective choice.

Pros of extending your policy

One advantage of taking advantage of a term policy's guaranteed renewability feature is that it may be the only way to continue having life insurance if your health has changed. If you've been diagnosed with a terminal or life-shortening illness, you may not qualify for a new policy that offers a substantial death benefit. In this case, extending your term policy can provide financial confidence for your family.

Cons of extending your policy

As mentioned, the insurance company will typically raise your premiums once the term is expired, and these premiums will generally increase more each year. For many people, this option is only viable for a few years. Additionally, you may be limited to a certain age, typically 75 or 95 years old, depending on the insurance company.

You can convert your term policy to a permanent one

If you have a term life insurance policy that's about to expire and you want to continue with coverage, you can convert it to a permanent life insurance policy. This is a good option if you've been diagnosed with a chronic illness and want substantial long-term coverage. It's also a good idea if you want to avoid a medical exam, as most term policies allow you to convert without undergoing additional underwriting or an exam.

When you convert from a term to a permanent policy, you retain your coverage and provide your beneficiaries with a large death benefit after you pass away. This is because permanent life insurance policies have a cash value component that grows over time. This means that a portion of your premium dollars are invested and can be borrowed against, used to pay premiums, or withdrawn to supplement your retirement income.

However, converting to a permanent policy typically comes with higher premiums. You can expect your premiums to increase substantially, and you may be limited to specific permanent policies offered by the insurance company. Additionally, converted policies may only be eligible for selected permanent policies, so you might not have the option to choose a specific policy.

To convert your term policy to a permanent one, contact your insurance company, agent, or broker well before your term policy expires. They can guide you through the process and explain the specific options available to you. It's important to start the conversation early, preferably at least a year before your policy's stated conversion deadline, to ensure a smooth transition and avoid any gaps in coverage.

You can purchase a new term life insurance policy

If you're relatively young and in good health, you may want to consider purchasing a new term life insurance policy. This is likely to be the most cost-effective option, as you can benefit from lower premiums.

However, it's important to note that as you get older, term life insurance policies become more expensive. This is because older people present a higher risk to insurance companies. You will also likely be required to undergo a medical exam to qualify for a new policy, and depending on your age, you may not qualify for the length of the term policy you want.

When buying a new term life insurance policy, you have the flexibility to choose from various policy types, including term life insurance, no medical and guaranteed policies, whole life insurance, and universal life insurance. You can also adjust the death benefit level to align with your current needs. If your financial needs have decreased since your previous policy, you can opt for a lower death benefit and a shorter term, which will result in lower premiums.

It's recommended to consult with an experienced insurance advisor or broker to determine if applying for a new term life insurance policy is the right decision for your circumstances. They can guide you in choosing the most suitable coverage and help you navigate the application process.

You can cancel your policy

Yes, you can cancel your term life insurance policy at any time. If you have a term policy, you can either formally cancel with your insurance company or simply stop paying the premiums. However, it is important to note that if you cancel your policy, you will no longer have life insurance coverage, and your beneficiaries will not receive any payout upon your death.

If you are considering cancelling your term life insurance policy, it is important to carefully assess your financial situation and future needs. Ask yourself the following questions:

• Do I still have dependents who rely on my income?
• Do I have significant debts, such as a mortgage or other financial obligations?
• Do I have a business, and if so, what are my business succession plans?
• Do I have special needs dependents who will require lifelong financial support?

If you decide to cancel your term life insurance policy, be sure to review the specific terms and conditions of your policy, as there may be certain requirements or penalties for early cancellation. Additionally, if you have a permanent life insurance policy, the cancellation process may be more complicated and may involve surrender fees.

It is always a good idea to consult with a financial advisor or licensed insurance professional to help you make an informed decision based on your specific circumstances and goals.

Frequently asked questions