Term life insurance has a set end date, unlike permanent, or whole, life insurance, which provides coverage for life and can build cash value over time. Most people choose term life insurance for its affordability and flexibility, and it is a great option if you’re looking for temporary coverage or are on a budget. However, what happens when your term life insurance policy expires and you are still alive?
Most people simply let their policy lapse and do not renew it. However, there are some options available to you if you find yourself in this situation.
- Convert – One option is to convert your term life insurance policy into a permanent life insurance policy. If you’re healthy and have no major health concerns, you may be able to convert your term life insurance policy to a whole life policy. This will provide you with lifelong coverage, as long as you continue to pay the premiums.
- Extend – If you have health issues or are getting older, you may not be eligible for a conversion. In that case, you may be able to extend your term life insurance policy for another term. This will give you additional time to make other arrangements for coverage.
- Take out a new policy – Another option is to take out a new life insurance policy. This is usually more expensive than converting your existing policy, but it may be the best option if you are older or have health problems that make it more likely that you will die soon.
We will go over the details of what you can expect when your term life insurance policy expires.
When does term life insurance expire?
All term life insurance policies have a definite end date written on your life insurance policy documents. It is important to know that date and not extrapolate dates based on when you applied for insurance, when you got approved, etc. Your safest bet is to look specifically for the policy expiration date. It is expected, of course, that your term policy will end at some point. Fortunately, in most cases, you will have a few options to keep coverage:
- renew your policy
- convert to a different policy
- get a new policy
In most cases, term life insurance is renewable with the same company. Since most people will continue to need coverage after the term life insurance policy expires, it is natural that there are procedures in place to renew the policy.
Many times, term life insurance policies have a guaranteed renewability rider. These riders let the policy owner renew without having to requalify. Even though you will pay premiums that are going to be higher on the renewal policy, it is a relief knowing you are guaranteed a renewal should you find yourself in poor health.
Convert into permanent life insurance
A sensible option for many is to convert the term life insurance policy into a permanent life insurance policy. Commonly, people will buy term insurance to get the highest amount of death benefit at that moment. Life insurance needs change over time, though. As a family evolves and the insured’s financial situation changes, it may be time to get permanent insurance.
In order to convert a term life insurance policy to a permanent coverage policy, you need to have purchased that option as a rider to your original policy when it was purchased. If your policy offers that option, consider the benefits of permanent life insurance.
Get new coverage
Another common option is getting new coverage with the same or even a different insurance company. There are multiple reasons why this may make sense. Let’s say, for example, that your current insurance company wants to give you a much higher renewal premium than that you pay on your current policy. You can shop around, get new coverage that may even be better than your current policy, and save money.
Getting a new life insurance policy will be based on your current age and health condition. After a certain age, even if in good health, you can expect to pay substantially higher premiums on a new life policy.
Let the policy expire if you no longer require coverage
Lastly, and something that you would want to rethink carefully, is going unprotected. Even if you are single, somebody will have to cover your final expenses. Therefore, it is only prudent to keep some form of coverage
However, your last option is to just let the term life insurance policy expire and not buy any more insurance coverage to relieve your loved ones of the financial obligations of a funeral.
When should you start looking at your options?
If your term policy ends within a year, that is a great time to start exploring your life insurance renewal options. Start planning with your current life insurance company and look at other companies.
Suppose your term insurance policy was purchased many years ago. In that case, life insurance products evolve over time, and chances are you may be able to find a better policy out there, even if it’s from a different insurance provider.
How to assess your new coverage needs?
Life insurance coverage is something that should be assessed regularly. It is particularly important to take stock of your life insurance needs as the expiration of your term life insurance policy approaches.
Consider your new death benefit coverage needs for a new life policy based on your current stage of life. Is term insurance still prudent? Term life insurance fills needs at any age. In your later years, a final expenses policy makes sense for many reasons if, for nothing else, just to ensure that expense is not an added burden to your loved ones.
Consider the needs you are trying to insure for. Do you need to transfer wealth to your heirs? Insurance policies are a great way to provide your loved ones with tax-free inheritances.
Are you still young enough to consider a permanent life policy with a cash value component? If so, a whole life insurance policy or a universal policy may be a good fit for you. A permanent policy provides coverage for your entire life and allows you to build up a cash value component you can use even while still alive.
Does term life expire?
The nature of a term life policy is to provide coverage for a specific period of time. At the end of that term, the life insurance policy expires. So yes, a term life policy does expire.
Are all term life policies renewable?
No, only some term insurance policies are renewable. The choice must have been made when the policy was purchased for that feature to be available.
What if I want to cancel my policy?
You can cancel life insurance at any time by notifying the insurance company. Your coverage will end when the policy is cancelled.
What happens if I let it renew?
If your life insurance renewal option does not require you to take any steps to have it automatically renew, that is good news if you don’t want to change anything. In most cases, the renewal must be exercised deliberately and documented by the insurance company.
Will a medical exam be required if I want to renew my term life policy?
In most cases, term life insurance policies can be renewed without a medical exam. You will find that you will be paying a higher premium when you renew. The initial premiums were set when you were younger and, as you age, the cost of insurance rises.
Are the premiums higher if I renew my term life insurance?
Yes, you will pay a higher premium for your life insurance renewal. Life insurance rates are based largely on your age. When your existing policy ends, you will renew it years after the current policy was purchased, which increases your costs even if you are in good health.
Am I required to take new coverage from my existing provider?
You do not have to take coverage from your current life insurance company. You should explore all your options. Although there may be benefits to staying with the same insurance company, competition often fosters favourable results for consumers.
What if I decide not to renew or take out new life insurance coverage?
If you decide to “self insure”, that is an option. When your current term policy expires, there is nothing you have to do.
There may be valid reasons for choosing not to renew or have any type of life insurance. You will be the judge of that. Make sure to weigh the pros and cons carefully, though. Carefully selected term coverage is a bargain considering the benefits it offers.
Should I renew my existing coverage or get new coverage?
The decision here could easily go either way. The best approach is really to do an analysis of the pros and cons.
If you have a life insurance policy with a guaranteed renewable option, that is a big plus. If your health deteriorates during your current term life insurance policy, renewability with your current insurer is probably your best bet.
Always shop around, though. You should have at least three quotes that include all the insurance policy details, not just the price and death benefit.