Cost & Coverage
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Weighing your options when your term life policy expires.
If your life insurance expires and you still need coverage, you can convert to a permanent policy or buy a new term policy
If you let your insurance policy expire without replacing it, your family will not receive a death benefit when you die
The type and amount of life insurance you buy depends on your financial responsibilities
When you buy a term life policy, you purchase it for a set term, anywhere from five to 30 years. You pay premiums for the duration of the term, and if you die during that time, your family gets the full death benefit.
What happens to the policy you’ve been paying for if you don’t die and it expires? Hopefully, your need for life insurance will be gone too. People generally only need life insurance during a certain period of their life when they are paying off debts and are responsible for dependents. But sometimes there is still a need for life insurance coverage once a term policy expires. Rest assured, if that’s the case for you, there are options to make sure you have adequate coverage.
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Deciding whether you need life insurance after your term policy expires is similar to deciding whether you need life insurance in the first place — it’s all about your financial responsibilities to your dependents and your estate’s ability to support them if you die.
As your current policy’s expiration date approaches, you can revisit your coverage needs the same as you would for any other major life event that alters your financial situation. You might discover that you need more or less coverage. Alternatively, you may no longer need coverage at all.
If you’re coming to the end of your term and think you may need continued coverage, you should start that conversation with your insurer or broker six months before your policy expires to ensure that you aren’t left with a coverage gap.
If you decide that you no longer need any life insurance coverage after your policy expires, you can just let it expire. You’ll pay your last premium payment, and when the plan ends, so will your coverage.
When you outlive your term policy, you will no longer have life insurance coverage — if you die the day after your policy expires, your family won’t be eligible for a death benefit of any size. The exception: if you’ve purchased return-of-premium term life insurance, which returns the premiums you’ve paid into it if the term expires without you dying. The catch — it’s much more expensive than term life insurance.
The caveat of term life insurance is that unlike some whole life insurance policies, there is no cash-value. No one likes to pay for something they never use, but think of it like the travel insurance you buy in case you are abroad and become ill — you pay the premium but hope to never use the service. It provides necessary financial protection, as opposed to a financial investment.
The limitation on a term life insurance policy’s cash value is also what makes it more affordable than other policies.
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If you still have dependents or financial responsibilities (such as a mortgage) after your policy’s end date, you’ll still need some life insurance coverage. Although, your circumstances have probably changed since you first purchased your initial policy and there might be a different policy that is better suited for you, which you can now switch to.
While you technically can’t extend your current term life insurance policy, you can purchase additional coverage by converting your term policy to a permanent policy or applying for a new term policy.
Most term life insurance policies come with a built-in rider called a term conversion rider, which gives you the ability to convert your term policy to a permanent policy when the term expires. If you’re unsure if your policy includes a term conversion rider, your insurer will be able to help.
The main advantage of a term conversion rider is that you won’t have to go through the underwriting process again, which allows you to skip the medical exam and keep your original rate class even if your health status has dramatically worsened since you initially applied.
Depending on your age, converting a term life policy to a whole life policy can also save you the additional costs that are involved with taking out a completely new policy, as you can see below:
Sample based on 20-year term life insurance policy for a non-smoker male in Preferred health rating.
The disadvantage of converting a term policy to a permanent policy is that permanent insurance is, on average, five to 15 times more expensive than term coverage; so if you’re healthy and relatively young, you can expect to pay more than you were paying for your current term policy. Though it may be possible to get something called a term conversion credit to lower your payments for the first year, you’ll only see a reduced cost in the short-term.
If you decide to take advantage of the term conversion rider component of your policy, you’ll need to make this change during the term of your policy. You cannot convert your policy after it has already expired.
You may find that while you still need some life insurance, you don’t need as much. With a partial conversion option, you can retain coverage but lower the amount. So if, for example, you only need a small benefit to pay for something like funeral costs, you can lower your premiums and keep that coverage until you die.
If you’re still in good health and relatively young, applying for and buying a new term policy could be more affordable than converting your term policy to a permanent policy.
You should start the application process for a new term policy as soon as possible to avoid a coverage gap. The earlier you start, the better prepared you will be for any hiccups in the application process. For example, if your application for a new term policy is rejected, you’ll hopefully still be able to utilize the option to convert your current term policy into a permanent policy. Even though you have bought life insurance coverage before, changes in your health or other records could mean you’re ineligible to buy a new policy now. Again, six months before the expiration date is the minimum suggested amount of time to have a new policy in place.
When purchasing a new term policy, there are many different options to consider:
The factors to take into account when determining how much coverage you need to buy replicate the qualifiers from the first time around — do you have any outstanding financial responsibilities or dependents who rely on you? These elements influence how much and what type of term life insurance you will buy:
Check out the Policygenius coverage calculator above to help you crunch the numbers and figure out exactly how much coverage you need.
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