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What happens if you outlive your term life insurance?
Taking the time to reassess your coverage needs could help you save.
Whether you chose the policy because it was the most affordable option, or you wanted coverage while you were paying down debt, term life insurance comes with an end date. And when you get to the expiration date of your term policy, taking the time to reassess your new coverage needs can be a great way to make sure you’re not paying for life insurance you no longer need.
What's in this guide?
- What should I do if I outlive my term life policy?
- Do I still need life insurance?
- Can I renew my term life insurance policy?
- Can I convert to a permanent life insurance policy?
- Should I buy a new term life insurance policy?
- Compare term life insurance policies
- Bottom line
- Frequently asked questions about term life policies ending
What should I do if I outlive my term life policy?
Once your term life insurance has expired, consider the following options as you reevaluate your coverage needs:
- Determine if you still need life insurance or if it’s time to let it expire.
- Convert your term policy to a permanent life insurance policy.
- Renew your term life insurance policy.
- Shop around for a different term life insurance policy.
Do I still need life insurance?
An expiring term policy allows you to examine whether you need life insurance at all. The sole purpose of term life insurance is to make sure your loved ones are cared for in your absence. Consider whether your family still carries the following expenses that life insurance could cover after you’re gone:
- Income replacement. Consider how long it might take your family to cope without your income and adjust their living expenses to compensate.
- Child’s tuition. Do you have kids in a private school or approaching college? If so, your death benefit could ensure their tuition is paid without interrupting their education.
- Mortgage. Your family home may be your largest asset, and one you don’t want your family to lose after your death.
- Medical bills. Whether your family has existing medical debt, or the cause of your death creates medical bills, a life insurance death benefit can make sure your loved ones aren’t left to shoulder that burden.
- Funeral costs. The average funeral costs at least $7,000 and can be as much as $12,000 depending on where you live. Even a small life insurance policy could make sure your funeral expenses are covered.
Can I renew my term life insurance policy?
Most term policies come with a renewal option — but simply because you can renew your life insurance doesn’t mean you should. If you do choose to renew, you won’t have to go through the medical exam again or prove your insurability. So if your health has declined since you purchased your original policy, renewing may seem like the best option. But there are downsides to consider, including:
- Higher rates. If you had extended the term of your policy when you purchased it, you would have paid higher rates. But the main reason your premium will increase upon renewal is because of “adverse selection” — an insurance term that means your choice to renew and pay the high premium indicates that you may be in worse health now, which increases the company’s risk and results in a higher premium.
- Time constraints. You have to renew 30 days before your term policy expires and before you reach a non-renewal age, which is typically 80 years old. If you miss the renewal window or turn 80 before you renew, your policy will expire.
- No changes allowed. You may want to renew your policy, but don’t need the same amount of coverage as when you originally purchased your policy. Unfortunately, no coverage changes can be made to the policy if you renew it.
Can I convert to a permanent life insurance policy?
If your term policy includes conversion, you can convert your term policy to a permanent policy that offers lifetime coverage. This can be especially helpful if your life circumstances have changed and you need to know you have coverage in place.
For example, it might be best to convert if you have a special needs child and want to provide for them after you die, or if your wealth has increased and you’re concerned about the estate tax burden on your loved ones after you’re gone. But this option has benefits and drawbacks.
- No medical exam. As with the renewal option, you don’t have to retake your medical exam to convert your term life insurance policy to permanent.
- Cash value. Part of your premium earns cash value that you can withdraw or take tax-free loans against.
- Higher rate. Your premium will go up when you convert, first because a permanent policy is more expensive than a term policy. And, while your rate isn’t based on your health, the insurer includes your current age as a factor in calculating your premium.
- Time constraints. You must convert your policy before it expires, usually within 30 days before the expiration date, but some companies require more time. And as with the renewal option, there is a cut-off age.
Should I buy a new term life insurance policy?
If you’re in good health, you may consider buying a new term life insurance policy to cover whatever expenses you still have, such as tuition or your mortgage. While a new term policy will have an end date and won’t accrue cash value, the policy is simple and affordable, and the death benefit payout is tax free. Consider one of the following options:
- Level term. Your premium stays the same throughout the term of your insurance.
- Decreasing term. Your premium stays the same, but your death benefit gradually decreases over time.
- Increasing term. Your premiums increase every year, which increases your death benefit, to help cover rising expenses and inflation.
- Annual renewable term. The least expensive of the term life policies, your policy renews annually for a set number of years, and the premium increases at every renewal. Best for short-term insurance needs.
- Return of premium. Depending on the language of the rider, this add-on refunds a part or all of your premiums if you’re still alive when the policy expires.
Can I cash out my term life insurance policy?
No. A term policy pays a death benefit, but has no cash value to be withdrawn. If you’re willing to pay a little more in premiums, you can attach a return of premium rider to a new term policy. This benefit will refund some or all of your premiums if the policy expires. You could also choose to convert your term policy to a permanent life insurance policy, which will slowly earn cash value.
Compare term life insurance policies
The end of your term life insurance policy is a great time to reassess what kind of coverage you need going forward. But to truly take advantage of every option, consider reevaluating your life insurance needs a few months before your term policy’s expiration date. And be sure to compare the term policies offered by other insurers so you can get the best price for the coverage you need.
Frequently asked questions about term life policies ending
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