Term Life Insurance Policy: What You Should Do After It Expires

Term Life Insurance Policy: What You Should Do After It Expires

Term life insurance is sold for a specific term — often 10, 20 or 30 years. Many insurance customers outlive the term and then have to determine what to do after the policy expires.

Whether you are planning ahead for when your term life insurance policy expires or you have already seen it happen, here's what you need to know about your options moving forward.

What Does It Mean When a Term Life Insurance Policy Expires?

There are two ways to purchase life insurance: as a permanent policy or for a term. Permanent life insurance is set up to provide your beneficiaries with a death benefit no matter how long you live. Term life insurance, on the other hand, is only valid for a specific amount of time, or term, which means the policyholder could potentially outlive the policy's expiration date.

With term life insurance, the insurance company may not have to pay out a death benefit since it's likely that most policyholders will outlive the term. This means that term life insurance tends to be more affordable than permanent policies.

However, this does lead to a potential problem for term life insurance policyholders: If you still need the same amount of coverage after your policy expires, your age and health may increase the cost of a new policy.

Do You Need to Maintain a Life Insurance Policy?

Many insurance customers choose a life insurance policy term that fits with their potential financial obligations. For instance, young parents may each carry a term life policy that will last until after their children have completed college and their mortgage has been fully paid off. This type of term life insurance planning allows you to protect your family financially in case you pass away before those financial obligations have been met.

But even if you have planned for a term life insurance policy that expires at the right time, you may still want to maintain a policy afterward. Here are some of the common reasons you may still need life insurance protection after your term life policy lapses:

  • You still owe money on your mortgage
  • You carry other major debts
  • Your children, partner or other family members are dependent on your income
  • You want to guarantee a financial legacy

It's also important to remember that life insurance benefits pass to beneficiaries outside of probate. This means the money will come directly to your named beneficiaries upon your death. Since neither creditors nor taxes can touch a death benefit, maintaining life insurance after a term policy expires can be an important part of your estate planning.

What Options Do Policyholders Have?

If your term life insurance policy is about to expire, there are a number of available options for handling the issue. These include:

  • Extending your term life insurance policy: Most term policies provide a guaranteed renewability feature on a year-to-year basis until you reach age 95. While you will not have to go through underwriting or a medical exam again, the insurer can raise your premium costs each time you renew.
  • Purchasing a new term life insurance policy: A new policy will likely come with higher premiums, but you can purchase another term policy that will protect your family until your financial obligations are met.
  • Converting your term policy to permanent life insurance: Many insurers will allow their customers to convert term policies to permanent insurance without underwriting or a medical exam. You can expect your premiums to rise if you choose to convert your policy and some insurers will only allow you to convert a portion of the death benefit, meaning you will have a lower benefit for a higher cost.
  • Putting your premiums toward retirement: If you decide that you don't need to maintain life insurance, you could start distributing the money you save on premiums to your retirement accounts. Investing this money for retirement could help give you a more secure future.

What Should You Do When Your Term Life Insurance Expires?

The best time to figure out how to handle an expiring term life insurance policy is before it happens. Determining your life insurance needs and exploring the available options beforehand can help you shop around and make the best decision for your family.

Emily Guy Birken AuthorThumbnail

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