If you have purchased a term life insurance policy, you may be wondering what happens when the end of term life insurance occurs. Here, we’ll talk about what to do when your policy ends.
When Will Your Life Insurance Policy End?
- Whole Life Insurance
As the name implies, whole life insurance provides coverage for your whole life. Since the policy guarantees coverage into old age, a whole life policy is usually more expensive. However, it does accrue cash value that you can borrow against later in life. As long as the premiums are paid, this type of insurance does not end until the policy owner dies.
- Term Life Insurance
Term life insurance, however, does end. The coverage provided by term life insurance only lasts for a set amount of time as agreed upon at the time of purchase. Usually, term life insurance policies are around 20 years in length, though they can range from much shorter or longer depending on what you select at the time of purchase.
What Do You Do When You Reach the End of Term Life Insurance?
When you’ve reached the end of your term life insurance policy, you typically won’t have to actually do anything to terminate the policy. It will just … end. In most cases, the insurance company will send a letter notifying you that your policy is over and you no longer have life insurance coverage.
While a term life insurance policy doesn’t carry a cash value, some term policies will be built with a return of premium rider. This means that if you outlive the term policy, the premiums that you’ve paid over the years will be returned to you. You may need to communicate with your insurer to tell them the method by which you would like your premiums returned.
What Are Your Options for Getting Insurance After Your Term Policy Expires?
If your term life insurance policy expires, you aren’t out of insurance options. You could:
- Extend the current term policy
If your term policy allows it, you may be able to extend the term policy on an annual basis following the expiration of your term policy.
Pro: You won’t have to shop for a new policy and it can provide a short-term solution to continuing coverage for your debts.
Con: You may have to submit to annual health screenings that may prevent you from keeping your policy if you become ill.
- Convert your policy to permanent
If your term policy allows it, you may be able to convert your term policy to a whole life or “permanent” policy without a physical exam.
Pro: If you’ve faced some health challenges or have changed financial positions and are able to afford whole life insurance, this may help you get coverage that was previously unavailable to you.
Con: Not all policies allow this option or you may not need whole-life insurance – just a few more years of coverage.
- Get new life insurance
If your term policy doesn’t allow for extending the term or conversion or if you just want to go with a new insurer, you can search for new term policies available to you in the length of time that you need it.
Pro: You can adjust the length of your new term policy to match your debt-coverage needs.
Con: Life insurance premiums are more expensive when you purchase them later in life and you may have to do a physical exam to qualify.
- Choose not to get more insurance
At some point in life, you may no longer need life insurance. Consider your debts, your dependents, and your financial plan after retirement. It may make the most sense in your situation to just allow the policy to expire and take advantage of the cash you’re saving each month by not paying into a policy.
Planning for the End of Term Life Insurance
The good thing about purchasing term life insurance is that you will know exactly when it will run out as long as you’re planning carefully. Consider the following when developing your plan:
- Stagger your purchases of term policies: Life insurance is the most affordable when purchased at a younger age, however, you may not be able to afford the amount of coverage you need, or your coverage needs grow as you and your family does. You can purchase term policies every 5 to 10 years to “stair-step” your coverage. This method can help prevent you from running completely out of insurance before you have your debts paid and can also make owning enough coverage more affordable.
- Get final expense insurance: If your term policy is over and you don’t have dependents who need financial assistance, consider getting final expense insurance to cover the cost of your burial and funeral. This policy can take the burden of paying for your final expenses off of your loved ones.
If you’ve reached the end of term life insurance, or are approaching the end soon, reach out to one of our Independent Insurance Associates agents to discuss your next steps. We are here to help!