Life Insurance

What Happens If You Outlive Your Term Life Insurance?

If you outlive your term life insurance policy, you may have options to extend your policy or find a new policy that can better fit your current circumstances. Find out how extending your term life policy could help you maintain coverage and when it would be better to switch to a new policy instead.

What Happens If You Outlive Your Term Life Insurance

Term life insurance only lasts for a predetermined “term,” after which the policy either ends or automatically renews at a higher rate. Term life policies differ from permanent life insurance policies in this regard because permanent life policies continue for the entire lifetime of the insured.

This means if you die after after your term life insurance expires, no death benefit will be paid to your beneficiaries. However, there are many options you can consider when your term policy is about to end, such as extending the policy, renewing it, or converting it to a permanent policy. 

What Happens When Term life Insurance Expires?

When term life insurance expires, you’re typically left with two options: You can let the policy lapse altogether or renew at a higher premium, which may happen automatically if you do not intervene, depending on the insurer. If you plan to continue your term policy, it’s best to not allow the policy to lapse because this could leave you without coverage until your next policy is activated. Instead, either renew your policy prior to the term’s end or purchase a new policy before your current policy’s end date so that you maintain ongoing protection. 

Your Options to Extend Term Life Insurance

It may be possible to extend your term life insurance coverage before your term life policy ends. Extending your policy intentionally typically enables you to get a better rate than if the policy automatically renews. It also allows you to prevent a lapse in life insurance coverage if your policy does not automatically renew.

Let your policy automatically renew at a higher rate

Not all term life insurance policies automatically renew. If yours does, it will likely cost you more money than if you were to work with your carrier to renew ahead of time. It’s also possible that when your policy ends, it will simply stop providing life insurance coverage altogether.

Work with your current insurer to renew your current policy

Not all term life insurance policies can be renewed. However, if you have a renewable term life insurance policy, then this is an available option. When the time comes to renew, inform your insurance company about your intent to renew, which would allow you to continue paying your life insurance premium and keep your existing policy.

Keep in mind, though, that while those renewing their term life insurance policy or converting it into a permanent life insurance policy typically do not need a medical exam, they will still see an increased rate based on age alone. However, if you instead decide to purchase a new policy altogether, you will need to get a new exam or assessment.

Convert your term life policy into a permanent life policy

To convert term life insurance into permanent life insurance, your policy usually must have a convertible term life rider. This rider is an agreement from the outset of the policy that you have the option to convert your term policy into a permanent one in the future. If you aren’t sure whether your current term life policy offers this option, check with your insurance carrier.

Since term life insurance only provides coverage for a designated period and offer few if any living benefits, it can be beneficial to convert the policy into a permanent one when you are able to afford a permanent policy’s higher premiums. Unlike term policies, permanent life insurance policies never expire and many types of permanent policies accrue cash value over time.

For example, those new in their careers may decide to purchase term life insurance as a more affordable means of financial protection. However, after 10 or 15 years, their careers may have progressed to allow them to comfortably afford to convert their term policy into a permanent life insurance policy, which would provide more benefits and lifelong coverage.

Purchase an entirely new term life policy

Sometimes, it’s a good idea to shop for a new life insurance policy altogether. For example, if your coverage needs have changed, it may not make sense to renew your existing policy. However, life insurance rates are heavily influenced by age and health, so you should expect to see an increase in your premium if you purchase a new policy altogether. In addition, purchasing a new term life policy — instead of renewing your existing policy — also typically requires a new medical exam so that your insurance carrier can assess your health risks.

If you do explore this option, it’s best to begin shopping for a new term life insurance policy long before your policy ends so you can ensure that you do not have gaps in coverage.

Consider Extending Term Life Insurance By Buying a New Policy

Purchasing a new policy is often one of the simplest ways to extend term life insurance. Term life insurance is excellent for providing coverage during a specific life period, such as when you’re starting a new business or buying a home. For example, during your first few years of launching a new business, you may take on debt to cover your business’s needs. Term life coverage can protect beneficiaries from those debts if you die before they are paid.

When buying a new term life policy, you need to consider the amount you’ll need and for how long. Consider the following common types of term policies.

Level Term Policies

Level term policies provide the same death benefit, regardless of policy duration. For example, if your death benefit is $100,000, the payout from your policy will be $100,000 whether it occurs the day after you receive the policy or the day before it ends. This allows policyholders to have predictable coverage throughout the policy term.

Convertible Term Policies

Convertible term policies allow you to change your temporary term insurance into permanent life insurance. These are different from other life insurance policies in that they guarantee your insurability. Even if your health status changes for the worse, the life insurance company must allow you to convert your policy.

Decreasing Term Policies

Unlike level term policies, decreasing term policies lowers your death benefit over time, until it reaches $0 at the end of your policy term. Because of this, decreasing term policies tend to be more affordable than level term policies, which provide the same death benefit for the duration of the term. This type of policy is designed for protection against a debt — or multiple debts — that will diminish over time.

For example, you may currently have debt that you know you will be able to pay off within a specific timeframe, such as a 20-year mortgage. A 20-year decreasing term policy would provide protection on that mortgage for a lower premium cost than a level term policy, and the death benefit would decrease over time to match your decreasing mortgage debt as you pay it off.

Return of Premium Term Policies

If you are a relatively healthy and young individual, a return of premium term policy may be a good choice because you are likely to outlive your policy length. Unlike other term policies, where outliving your policy means you forfeit the death benefit and premiums paid, return of premium term policies ensure that you get your premiums from the policy refunded to you if you outlive it. However, it should be noted that this type of coverage is significantly more expensive than standard term life insurance.

Yearly Renewable Term (YRT) Policies

Yearly renewable term (YRT) policies last for one year at a time. The policy is quoted for you according to your current age and health status, then extended each year that you want the policy to continue. It’s important to note that with every passing year of a yearly renewable term policy, the premium increases to cover the risk of insuring an older individual. This differs from other term policies, which rate you at your current age, then keep that rate of insurance for the policy’s entire term.

A yearly renewable term policy could be ideal if you only need coverage for a short number of years, such as for added protection while you’re caring for an elderly parent. This ensures that if you die during this time, your dependents would still have their financial needs met.

Your Options to End Your Term Life Insurance

You may end your term life insurance coverage at any time by notifying your insurer. Once you stop paying your premiums, your coverage will lapse. You could also wait for the term to expire, though it’s best to check with your insurance carrier to ensure it will not automatically renew.

Keep in mind that it’s generally not a good idea to end all life insurance coverage, especially if you have debts and others that depend on you financially. However, if you get a new permanent life insurance policy or term policy in place, these may be good reasons to end an existing policy.

Can You Cash Out a Term Life Insurance Plan?

In most cases, you cannot cash out a term life insurance plan. Unlike permanent life insurance policies, term life insurance policies do not accrue cash value. Therefore, unless your term policy is a return of premium plan or comes with some other similar feature, there is nothing for you to cash out.