Term Life Insurance: Does It Expire?

Term life insurance is a popular form of insurance due to its affordability and customisable policies. However, it does expire. Term life insurance provides coverage for a specific period, typically ranging from 5 to 30 years, and ends once the term expires. The policyholder chooses the end date, selecting the term length based on how long they wish to be covered. While term life insurance is simple and affordable, benefits are only paid out if the policyholder dies during the term. If the policyholder outlives their term life insurance, no benefit is paid out, and the policy typically ends without any action needed from the policyholder. This guide will explore what happens when term life insurance expires and the options available to policyholders.

Term life insurance policies and their benefits

Term life insurance policies are a popular form of life insurance due to their affordability and customisable nature. They are often purchased to provide financial protection for loved ones in the event of the policyholder's death. While term life insurance does expire, there are several options available to those who require continued coverage.

Benefits of Term Life Insurance Policies

Term life insurance policies are a good option for those who want to ensure their loved ones are provided for in the short term, for example, until their children start earning or their mortgages are paid off. They are also a good choice for those who want to tailor their policy to suit their specific needs, as they can be customised extensively. The length of the term can be chosen by the policyholder, typically ranging from 10 to 30 years, and the premium rates are partly determined by the chosen term length. This flexibility makes term life insurance an affordable option for many.

Options for Continued Coverage

If you find yourself needing continued coverage after your term life insurance policy expires, there are several options available to you:

• Renew your term life insurance policy: Many insurers offer the option to renew your policy for a limited number of years without requiring evidence of insurability. This means you can extend your coverage even if your health has changed. However, your premiums will increase each year based on your age at the time of renewal.
• Convert your term life insurance policy to permanent life insurance: Some insurers offer the option to convert your term policy into a permanent one, which provides lifetime coverage. This option may be suitable for those who develop health conditions or become uninsurable, as it does not usually require a medical exam. However, your premiums will increase due to your increased age.
• Purchase a new term life insurance policy: If you are in good health, you may be able to get a more affordable premium by purchasing a new term policy. However, a medical exam will likely be required, and age is also a factor, with older people paying more for their policies.
• Purchase a permanent life insurance policy: Permanent life insurance policies provide lifetime coverage and have a cash value component. While they are more expensive than term policies, they can be beneficial for those with long-term financial obligations, such as a child with a disability.

Planning for the Future

When purchasing a term life insurance policy, it is important to consider your future needs and plan accordingly. Assess your financial situation, including any outstanding debts, dependents, and business obligations, to determine if you will require continued coverage after your term policy expires. By considering these factors in advance, you can ensure a smooth transition to a new policy or alternative arrangement.

Extending term life insurance

Term life insurance is a popular form of insurance due to its affordability and customisable policies. However, it does have an expiry date, which is chosen by the policyholder. This is usually set at 10-30 years, although some policies can be as short as five years.

When a term life insurance policy expires, the policyholder can choose to renew their policy, apply for a new term life insurance policy, convert to permanent life insurance, or cancel the policy.

If you want to extend your term life insurance, you can do so by adding a conversion rider to your policy. This allows you to extend your death benefit without undergoing a new medical underwriting process. However, there may be caps on your age or the amount you can extend, so it's important to discuss this with your insurance agent before purchasing the policy. Extending your policy will also result in higher premiums to reflect your current age and increased risk to the insurance company.

Converting to Permanent Life Insurance

Another option is to convert your term life insurance policy into permanent life insurance. This provides coverage for the rest of your life as long as premiums are paid and includes a cash value component that grows over time. While permanent life insurance is more expensive than term life insurance, it offers the benefit of lifelong coverage and can be used as a financial asset.

Purchasing a New Term Life Insurance Policy

If you are in good health and don't want to pay the higher premiums associated with extending or converting your current policy, you may want to consider purchasing a new term life insurance policy. This option allows you to take on more or less coverage depending on your current needs and may offer lower premiums if you are relatively young and healthy. However, keep in mind that a medical exam will likely be required, and age is a factor in determining premiums.

Weighing Your Options

When deciding whether to extend, convert, or purchase a new term life insurance policy, it's important to consider your health, financial situation, and anticipated financial obligations. If you have accrued any health issues during your coverage period, renewing or converting your existing policy may be your only option. On the other hand, if you are in good health and want to keep premiums low, purchasing a new policy may be the best choice. Consulting with a financial advisor and a life insurance agent can help you make an informed decision that best meets your needs.

Converting term life insurance

• Find your conversion deadline: If you know a term-to-permanent conversion is something you may want to pursue in the future, pay attention to the dates allowed in your contract. Buy a convertible term life insurance policy from the start. If you don't know the conversion deadline, read your contract documents or consult your financial advisor.
• Choose the type of permanent life insurance: Whole life insurance, universal life insurance, and variable universal life insurance are some of the common types of permanent life insurance. Each type has its own pros and cons, so be sure to understand the differences before making a decision.
• Calculate the new policy cost: There is usually no direct cost to convert term life insurance to a permanent policy. However, premium payments will likely be higher due to increased age and the permanent nature of the coverage. Consider a lower coverage amount on the new policy if you want to keep premium amounts lower.
• Convert: Decide whether to do a partial or total conversion of your existing policy. A partial conversion can make the transition more affordable, as it balances the need for permanent coverage with manageable payments. Consult a financial advisor to help you with the paperwork and review and sign a new contract.

It is important to note that not all term life insurance policies are convertible, so be sure to check the terms of your policy or consult your insurance provider to understand your options. Additionally, there may be a maximum age requirement for conversion, such as not being able to convert if you are over 65 or 75 years old.

Purchasing a new term life insurance policy

When buying a new term life insurance policy, you will need to undergo a medical exam as part of the underwriting process. The insurance company will also inquire about your driving record, current medications, smoking status, occupation, hobbies, family history, and similar information. The premium you will pay will be determined based on factors such as your age, gender, health, and lifestyle. The older you are, the more you will have to pay for a term life insurance policy.

When choosing a new term life insurance policy, you will need to select the term length, which generally ranges from 10 to 30 years. You can also choose the amount of coverage you need, which will depend on factors such as your age, income, mortgage, debts, and anticipated funeral expenses.

It is important to compare policies from different insurance companies to find the best option for your needs. Consider factors such as the financial strength of the company, customer satisfaction, and the availability of additional riders. You can also use online tools to calculate the lump sum that will cover your potential expenses.

Cancelling a term life insurance policy

Stop Premium Payments

One way to cancel your term life insurance policy is to simply stop making premium payments. This will trigger a grace period, typically lasting 30 days, during which you can make up missed payments and keep your policy active. If you choose not to make any payments during this grace period, your insurance coverage will automatically end.

Provide Written Notice

If you prefer a more formal approach, you can submit a written notice to your insurance provider, expressing your intention to cancel the policy. This can be done by sending a letter or, in some cases, submitting an online form through your provider's website. Here is an example of a term life insurance policy cancellation letter:

[Your Name]

[Your Address]

[City, State, ZIP Code]

[Date]

[Insurance Company Name]

[Insurance Company Address]

Re: Cancellation of Policy Number [Policy Number]

To whom it may concern,

I am writing to request the cancellation of my term life insurance policy, effective immediately. Please confirm the cancellation in writing and let me know if any additional action is required from my end.

Thank you for your prompt attention to this matter.

Sincerely,

[Your Name]

Contact Your Insurance Provider

You can also choose to call your insurance provider and initiate the cancellation process over the phone. Make sure to have your policy number handy so that an agent can easily pull up your policy and guide you through the necessary steps.

It is important to note that cancelling a term life insurance policy means you will not receive any payout, as these policies do not accumulate cash value. If you are considering cancellation due to financial constraints, there are alternative options to explore, such as reducing your coverage amount or switching to a more affordable policy.

Frequently asked questions