When a term life insurance policy expires, it doesn't mean your protection options end. Instead, it opens the door to solutions tailored to your current life stage. This article explores various choices you can make to protect your family's financial security when your term life policy ends, including continuing coverage or switching to a permanent policy with cash value.
What is a term life insurance policy?
Term life insurance offers temporary protection for a set period, usually 10 to 30 years. It doesn't build cash value but provides a death benefit to beneficiaries if the policyholder passes away during the term. There's no life insurance death benefit if the policyholder survives the term.
Term lengths help align insurance with financial needs like mortgage payments, debts, or income replacement. To determine your coverage needs, you can use a free life insurance calculator or speak with a licensed financial professional.
What happens when the term ends?
When your policy expires, coverage stops and doesn't automatically renew. If you’re alive at the term’s end, the policy ends without payout. Death benefit protection stops unless you take steps to extend or renew it. Let's explore some options.
Common options after term life insurance expires
Consider these options when your term policy expires:
Renew your term life policy
After your term ends, you can choose an annual renewable term (ART) option. This lets you continue coverage yearly without new medical checks. However, premiums will be higher based on your current age.
- Coverage continues if premiums are paid on time.
- Guaranteed coverage continuation regardless of health changes.
- Usually, no medical exam is needed for renewal.
- Premiums increase yearly based on age at renewal.
- Policy may expire at age 95.
Convert to permanent insurance if the option is available
Policy conversion, a valuable feature of some term life insurance policies, allows you to switch to whole life or universal life coverage through a conversion clause. Not all policies qualify for conversion, and not every carrier offers this option. For those that do, timely conversions are automatically approved, ensuring continued insurance coverage regardless of any shifts in your health.
- Lifetime coverage with no premium changes.
- Cash value builds over time.
- Insurability is locked in regardless of health.
- No medical exam is typically needed for conversion.
- Higher premiums than term coverage.
- Complex permanent insurance features.
- May not be as affordable as term coverage.
Purchase a new term policy
Starting a new term policy is sensible if you need substantial coverage but want better rates or features. Qualifying guarantees level premiums for the new term.
- Many term policies are available in 10, 20, and 30-year increments.
- Often, they are more affordable than permanent options.
- May include new conversion privileges.
- Fresh start with current health and lifestyle factors.
- You may have to pay higher age-related premiums than on the original policy.
- A new policy may require a medical exam to qualify.
- Age may limit term-length eligibility.
- Term policies don't build cash value.
- Health issues may affect approval or rates.
- You may encounter possible waiting periods for new coverage.
Let the policy lapse
You can easily let your life insurance policy lapse. This may be an option if, for instance, you have paid off debts, your dependents are independent, and your assets offer security.
Factors to consider before the term insurance policy ends
Here are important factors to consider before your term policy ends:
- Age and health status: Your life insurance needs often reflect the stage of life you are in. Young families need maximum coverage at minimum cost, while empty nesters may prefer permanent protection.
- Dependents: Dependents may rely on your income. Life insurance prevents financial strain if you can't provide support.
- Budgeting and goal planning: Consider premium differences between continuing, converting, or purchasing a new term insurance policy. You should weigh the cost of life insurance against other priorities like retirement contributions or emergency funds.
- Financial Responsibilities: Consider debts, obligations, and commitments that could burden survivors without life insurance.
- Start discussions 12 months before expiration. If unsure of the date, your agent can help. This timeline allows for comparison shopping and prevents gaps.
- Evaluate current financial situations, including debts, assets, income needs, and dependent support. What has changed since the purchase?
- Expert guidance can help you navigate options and ensure your decisions align with your financial strategy.
Alternatives to traditional life insurance
Besides letting your policy expire or switching to permanent coverage, you have other options you can consider. Here are a few:
Final expense insurance
If traditional insurance options don't fit what you're looking for, consider some alternatives, like final expense or burial insurance. It provides smaller death benefits (typically $5,000-$25,000) specifically designed to cover funeral costs and final expenses.
Guaranteed issue life insurance
For those over 50 who don't qualify for traditional insurance, guaranteed issue life insurance is permanent coverage that leaves a fixed amount to loved ones. No medical questions are required, but it may include waiting periods and limits.
Investments and savings as coverage alternatives
Some choose savings, retirement accounts, or investments over life insurance. These can replace traditional protection if you have adequate assets to meet survivor needs.
Planning your path forward
Consider your life stage and dependents' needs as your policy ends. Options include renewing, converting, getting new coverage, or letting the policy lapse.
Whether you continue protection or no longer need insurance, an informed decision supports your financial security and family well-being. Consult with a Mutual of Omaha financial professional to find the best solution for your circumstances.