Life Insurance: Death Before Term, What Happens?

Term life insurance is a type of insurance that provides a death benefit for a specified period, such as 10, 15, 20, or 30 years. If the insured person dies during the policy term, their beneficiaries will receive the death benefit, which can be used for healthcare and funeral costs, consumer debt, mortgage debt, and other expenses. However, if the policy expires before the insured person's death, there will be no payout. In this case, the policy simply ends, and the insured person is no longer covered or owes payments. Alternatively, the insurance company may allow the conversion of the term policy into permanent life insurance, which provides coverage for the rest of the insured person's life. This option is often available for a limited time and results in higher premiums due to increased age. Understanding term life insurance and its potential expiration is crucial for individuals seeking to provide financial security for their loved ones.

What happens if the insured person dies during the policy term?

If the insured person dies during the policy term, the insurance company will pay out the policy's face value to the beneficiaries. This cash benefit can 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.

Term life insurance policies guarantee a payout to the beneficiaries if the insured person dies during the specified term. If the insured person dies after the policy has expired, there will be no payout.

The death benefit is only payable to the beneficiaries if the insured person dies. If you outlive your term life insurance policy, you will not receive any money back.

If the policy included a return-of-premium feature, the policyholder would receive a check for the premiums paid during the term.

What happens if the insured person dies after the policy expires??

Term life insurance provides coverage for a specific period, typically ranging from 10 to 30 years. Unlike permanent life insurance, which is designed to offer lifelong protection, term life insurance ends once the term expires. If the insured person dies after the policy expires, there will be no payout.

When a term life insurance policy expires, it typically ends without any action needed from the policyholder. The insurance carrier sends a notice, premiums stop, and there is no longer a death benefit. If the policy included a return-of-premium feature, the policyholder would receive a check for the premiums paid during the term.

If you still need life insurance coverage after your term policy expires, you have several options. Many term 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, although your premium will increase based on your current age.

Another option is to purchase a new term policy. For younger individuals in good health, this may be the most inexpensive option. However, a medical exam will likely be part of the underwriting process, and the premium will be based on your current age and health status.

You could also consider purchasing a permanent life insurance policy. Permanent life insurance policies, such as whole life insurance, are more expensive than term life insurance but provide lifetime coverage and include a cash value component.

Finally, if you have a term policy that includes a conversion rider, you may be able to convert your term policy into a permanent policy without undergoing medical underwriting. However, conversion riders have expiration dates, and not all policies allow conversion up to the end of the term.

It is important to assess your financial situation and future needs to determine if you require continued coverage. Consult with a financial advisor or licensed insurance professional to make an informed decision based on your specific circumstances.

Can the term life insurance policy be converted into permanent life insurance?

Yes, some term life insurance policies can be converted into permanent life insurance. This is a good option for those who want to extend their coverage without going through the underwriting process again, especially if their health has deteriorated since they first took out the policy. Converting a term life policy to a permanent one is also simpler than applying for a new policy.

However, it is important to note that not all term life insurance policies are convertible. It is also worth bearing in mind that the premium payments for permanent life insurance will be higher than those for term life insurance.

If you are considering converting your term life insurance policy to a permanent one, the first step is to check the language of your policy to see if conversion is an option. Next, check the term conversion period—the time frame during which you can convert. Some companies will allow conversions at any point during the term of the policy, but many will limit the conversion period. For example, the conversion period on a 20-year term policy might be restricted to the first 10 years.

You will then need to contact your insurance agent or company to initiate the conversion. You will not need to take a life insurance medical exam or go through the underwriting process again, and the underwriting class you were assigned when you bought your term policy will not change even if your health has deteriorated. You will simply fill out a questionnaire, and your new permanent policy will be issued within a few days.

There are no fees for converting a term policy to a permanent one, but the rate you pay for coverage will increase. The older you are when you convert, the higher your premium will be. You also have the option to convert the full value of a term policy or just a portion of it. For example, if you have a policy with a $500,000 death benefit, you could choose to convert only $250,000 of it to a permanent policy, which would result in a lower premium.

The type of permanent policy you choose to convert your term policy to will also affect your premium. For example, the premium for a whole life insurance policy will be higher than that for a universal life insurance policy.

What happens if the insured person has a terminal illness during the first policy term?

If the insured person is diagnosed with a terminal illness during the first policy term, they may be able to claim a terminal illness benefit, depending on the insurance company and the terms of their life insurance cover. This benefit is typically included with or added to 'term' life insurance policies, and pays out the 'sum insured' (the amount of cover provided by the policy) when a policyholder is diagnosed with a terminal illness. Terminal illnesses are incurable ailments and diseases that the sufferer will never recover from and are likely to result in their death within a certain timeframe, for example, 12 months.

The idea of the terminal illness benefit is that the policyholder can use the payout to make plans and take care of their dependents before their death. The policyholder must provide proof of their diagnosis to the insurer's medical officer, who then needs to be satisfied that the policyholder's death will occur within a given period of the claim being made. The terminal illness benefit pays out the same amount of money that the policy would have paid to the policyholder's beneficiaries upon their death.

If the policyholder survives beyond the given timeframe, nothing is owed back to the insurer. However, once a successful claim has been made, there is no additional payout when the policyholder dies. An insurer could refuse a terminal illness benefit claim if it is made in the final months of a policy. In other words, if the policy's original term is due to end before the policyholder is expected to die, the payout may not be approved.

Policyholders diagnosed with a terminal illness are under no obligation to make a claim. If they prefer, they can allow their policy to run until their death, after which it would pay out as normal. However, the terminal illness benefit can help to make the end of a policyholder's life more comfortable and less stressful if they are unable to work and lose their income.

What happens if the insured person outlives the term life insurance policy?

If the insured person outlives their term life insurance policy, the policy simply expires and they stop paying premiums. The insurance company will usually notify the policyholder that their coverage has ended. If the policy included a return-of-premium feature, the policyholder will receive a refund for the premiums they have paid.

If the insured person still requires coverage, they can purchase a new term life insurance policy, convert their existing policy into a permanent one, or renew their term coverage. The latter option is likely to be the most expensive, as premiums will increase based on the policyholder's current age.

If the insured person is in good health, purchasing a new term policy may be the most cost-effective option. However, they may need to undergo a medical exam as part of the underwriting process, and their premiums will be higher than they were for their previous policy.

Frequently asked questions