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Weighing your options when your term life policy expires.
When you buy a term life policy, you purchase it for a set term, say 20 or 25 years. You pay premiums during the duration of the term, and if you die during that time, your family gets the full the death benefit. If you don’t die, that’s great — ideal really.
Once your term policy 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 people still need life insurance once their term policy expires, and those people have some options.
Deciding whether you need life insurance after your term policy expires is much like 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 meet them if you were to die.
This shouldn’t come as a surprise to you as your policy’s expiration date approaches. It’s important to revisit your coverage whenever you have a major life event that changes your financial situation — marriage, divorce, the birth of a child, the purchase of a home,. Sometimes, this might mean lowering your coverage; other times, it could mean purchasing an additional life insurance policy. Ideally if you still need coverage, you’ve already purchased it.
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 is no longer 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 many times more expensive than term life insurance.)
This can feel weird, to pay for something and never use it, but it’s the way the product works and the reason that it can exist!
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If you still need some life insurance coverage after your policy’s end date and you haven’t yet purchased additional coverage, you can either convert your term policy to a permanent policy or apply for a new term policy.
Most term 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. You can read your policy or talk to your insurer to find out if your policy includes a term conversion rider.
The main advantage of a term conversion rider is that it allows you to keep your rate class. So if your health status has dramatically worsened since you initially applied, you can still get coverage. You can also lower your coverage amounts, so if, for example, you only need a small death benefit in order to pay for funeral costs, you can lower your premiums and keep that coverage until you die.
The disadvantage of converting a term policy to a permanent policy is that permanent insurance can be six to 10 times more expensive than term coverage, so you can expect to pay much more than you were paying for your term policy, though it may be possible to get something called a term conversion credit to lower your payments for the first year.
Read more about converting a term policy to a permanant policy.
If you’re still in relatively good health and relatively young — say, you purchased your first term policy for a short term at a young age — applying for and buying a new term policy to extend past your current coverage could be more affordable than converting your term policy to a permanent policy.
If you still need coverage after your term policy’s expiration date, you should start the application process as soon as a possible to ensure that you don’t have a coverage gap. Again, six months before the expiration date is the minimum suggested amount of time to ensure that you have a new policy in place.
It’s important to start early because, even though you’ve bought life insurance coverage before, changes in your health or other records could mean you’re ineligible to buy a policy now. You want to ensure that the option to convert your policy is still available in case your application is rejected. It can take six to eight weeks for your application to get approved even if everything goes smoothly.
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Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.