Life Insurance Expiry: What Happens When Term Ends?

Term life insurance provides coverage for a specific period, typically ranging from 5 to 30 years. When a term life insurance policy expires, several outcomes are possible. The most straightforward outcome is that the coverage simply ends, and the policyholder is no longer required to pay premiums. The insurance company will notify the policyholder that their coverage has ended. If the policy included a return-of-premium feature, the policyholder would receive a refund for the premiums paid during the term. Alternatively, some term policies offer the option to renew on a year-by-year basis or convert the policy to permanent life insurance, although these options usually result in higher premiums. If the policyholder still requires coverage, they can also purchase a new term life insurance policy, but this may be more expensive due to age and changes in health status. Understanding the options available when term life insurance expires is essential for individuals to make informed decisions about their financial future and ensure continued protection for themselves and their loved ones.

Coverage ends

If you outlive your term life insurance policy, the most straightforward outcome is that your coverage simply ends when the term expires. This means you will no longer have life insurance protection, and your beneficiaries will not receive any death benefits if you pass away after the policy's expiration date. You also won't receive a refund of the premiums you paid during the term.

When a term life insurance policy expires, the insurance carrier will typically send a notification, and the policyholder's premiums will stop. If the policy included a return-of-premium feature, the policyholder would receive a check for the premiums paid during the term.

If you no longer need your term life policy, you don't have to do anything. You can just let your coverage lapse. However, if you still need coverage, you should review your life insurance options before your current policy expires.

Policyholders can renew their insurance

If you still need insurance coverage after your term life insurance expires, you can renew your policy for a set period of time. Many term life insurance policies include a guaranteed renewability clause that lets you extend your coverage past its expiration date on a year-to-year basis. While your death benefit stays the same, your premium is likely to increase each year you renew. This option makes sense if you just need coverage for a few more years, for example, if you were diagnosed with a terminal illness and are unlikely to be eligible for a new policy.

When your term life insurance expires, it will typically automatically renew on a yearly basis until its ultimate expiry date, unless you notify the insurance company that you don't want to renew. Your premiums will gradually increase each year due to your increased age and potential changes in health status.

Some term life insurance companies offer the choice to extend the policy term beyond the initially agreed date, which is referred to as a renewability rider. This extension is usually valid until you reach a certain age (generally 75 years), though it varies from company to company. If you like your current coverage and don't mind paying more expensive premiums, then renewing your term life insurance policy is a good option. It saves you from the hassle of shopping for a new policy, and you don't need to spend time researching and discussing a new term policy with your loved ones.

However, it's important to note that the revised premium for a renewed policy can be 5-10 times more expensive than your previous coverage. This is to cover the lack of proof of insurability, as the insurance provider assumes your health has deteriorated during the previous term. Therefore, if you're in relatively good health with no long-term medical issues, you may want to consider buying a new policy instead of renewing your current one.

Policyholders can convert to permanent life insurance

When a term life insurance policy expires, policyholders can choose to convert their coverage to permanent life insurance. This option is ideal for those who still need life insurance but want to avoid the hassle of shopping for a new policy. It is also a good choice for those whose health has declined during the term of their original policy, as it does not require proof of insurability or a medical examination.

Converting term life insurance to permanent life insurance provides lifelong coverage and the opportunity to build cash value. Permanent life insurance policies, such as whole life insurance, offer coverage for the entirety of the policyholder's life, as long as premiums are paid. These policies also include a tax-deferred cash value component that grows over time. The cash value can be used as collateral for a loan or withdrawn, although withdrawals may reduce the death benefit.

It is important to note that converting to permanent life insurance typically results in higher premium rates. Additionally, converted policies may only be eligible for selected permanent policies, limiting the choices available to the policyholder. To mitigate the impact of higher premiums, policyholders can opt for a partial conversion, retaining some form of coverage while benefiting from lower premiums.

Policyholders considering converting their term life insurance to permanent coverage should carefully review their insurance needs and consult with an insurance specialist or financial advisor. This will help ensure that they make an informed decision that aligns with their long-term financial goals and circumstances.

Policyholders can buy a new policy

If you still need life insurance coverage after your term life insurance policy expires, you can always buy a new policy. However, there are a few things to keep in mind when considering this option.

Firstly, you will likely need to undergo a new medical exam as part of the application process for the new policy. This is because your new policy will be based on your current age and health status, and the insurance provider needs to assess the risk involved. If your health has deteriorated since your previous policy, you may face higher premiums or even disqualification.

Secondly, the premiums for a new policy are typically much higher compared to your original policy. This is because you are older and potentially have changes in your health status, which increases the age-related risk. The premium amount will be determined by factors such as your age, gender, health, coverage amount, and the term length of the new policy.

Thirdly, there are several types of policies available when buying a new policy, such as term life insurance, no medical and guaranteed policies, whole life insurance, and universal life insurance. You can choose the type of policy and coverage amount that best suits your current needs and financial situation.

When deciding whether to buy a new policy, it is important to assess your latest financial situation and future requirements. Do you still have dependents? Is your estate sufficient to sustain them? Do you have pending loans or mortgages? Does your partner depend on your income? An honest introspection into your finances will help you understand your coverage needs.

It is recommended to consult with an experienced insurance advisor or broker well before your current policy's maturity date to discuss your insurance needs and determine if applying for new coverage is financially prudent. They can guide you through the complexities of managing your policy and help you make informed decisions about your coverage.

Policyholders can cancel their insurance

If you have a term life insurance policy and you're still alive when it expires, your insurance company will notify you that your coverage has ended and that you no longer need to pay your premium. At this point, you can choose to cancel your insurance. If you no longer need your term life policy, you don't have to do anything; your coverage will simply lapse.

However, if you have a permanent life insurance policy, the cancellation process can be more complicated. You will usually need to notify your insurance company to start the cancellation process, and you may be required to pay a surrender fee. In most cases, you will be able to keep the cash value when you cancel a permanent life insurance policy, but any cancellation fees will be subtracted from your final payout.

If you have a term policy, you can either formally cancel with your insurance company or simply stop paying the premiums. It's important to note that if you cancel your term life insurance policy before the end of the term, the cancellation process and potential refunds will depend on the specific policy and insurance provider. Most insurers offer a free-look period (usually 10-30 days) after purchasing a new policy, during which you can review the policy and cancel for a full refund of any premiums paid. After this free-look period, you may or may not receive a refund if you cancel your policy, as some insurers offer pro-rated refunds while others do not provide refunds upon cancellation.

The amount of money you may be entitled to if you cancel your term life insurance policy depends on several factors, including the policy terms, premium payment frequency, and the timing of the cancellation. The likelihood of receiving a refund decreases as you get closer to the end of the term.

Frequently asked questions