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What happens if you outlive your term life insurance?

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Term life insurance is purchased for a specific amount of time — usually 10, 20 or 30 years. If you outlive your term policy, your policy will end, and you will no longer have coverage. If you still want life insurance after your term policy ends, you may have the option to buy a new life insurance policy or consider a term conversion policy.

What happens when term life insurance expires?

While term coverage is often purchased assuming that any dependents will be grown and financially independent by the time it expires, that is not always the case.

Generally, when term life insurance expires, the policy simply expires, and no action needs to be taken by the policyholder. A notice is sent by the insurance carrier that the policy is no longer in effect, the policyholder stops paying the premiums, and there is no longer any potential death benefit. If the policyholder had a return-of-premium policy, a check would be sent for the amount paid into the policy throughout its term.

The exception is if there is a term conversion rider on your policy, which allows the policyholder to convert the term policy to a permanent insurance policy as you near the end of the term without going through the underwriting process again. This option may be worth considering for people who need coverage but whose health has declined and who do not want to have a medical exam.

Purchasing coverage after you outlive your term life insurance

Those who will need further coverage after the term policy expires may want to start evaluating other options six months to one year before the policy expires. That way, you’ll have time to add a term conversion rider to your current policy if needed.

Term conversion

As noted, some policies allow a term conversion at the end of the policy’s term. With this option, the policy is switched to a permanent life policy as dictated by the policy documents. Term conversion policies may come with higher rates, but they allow the insured the option to maintain coverage after their term ends. For many people, converting rather than purchasing a new policy may be cheaper. While health status won’t be a variable in eligibility, your new premium will be based on your age at the time of conversion.

Purchase a new term policy

For the relatively young who are in good health, the most inexpensive life insurance option might be to purchase a new term policy. Premium costs may also go down if a much lower death benefit and a shorter term are purchased, which may be a good option for people who need less coverage than when they purchased their initial term policy.

For example, for someone whose youngest child is still in high school when their 20-year term policy expires, an additional ten-year policy may be sufficient to ensure that their dependent has completed college and no longer needs financial support from the estate.

Keep in mind that a medical exam will likely be part of the underwriting process for any new term policy, and if there are new health issues since the first policy, the rate will likely increase. Age is also a factor — older people pay more for their life insurance policies.

Purchase a permanent policy

Another option for those who do not have a term conversion rider on their policy is to purchase a more permanent form of life insurance after the term policy expires. It is important to keep in mind that permanent life policies, such as whole life insurance, are more expensive than term — sometimes as much as ten times more expensive.

The benefit is that a permanent policy is valid until death as long as the premiums are paid. Permanent policies also have a tax-deferred cash value account. A portion of the premium is placed in a savings vehicle that grows and can be used as collateral for a loan or withdrawn. Although the cash value portion will probably not earn as much interest as some other investments, such as the stock market, it is generally safe and can play a key role in financial planning. Your cash value account will likely have a cap for interest and returns, information which can be found in your policy terms.

Some experts don’t recommend permanent policies for everyone, often because of the cost, but there are certain circumstances where these policies may make the most sense. For instance, permanent policies may be a good choice for someone who has a child with a disability who will never be financially independent or a non-working partner who would need help maintaining their lifestyle if the working partner dies.

Final expenses insurance

The median cost of a funeral in the United States is $7,640. For those who don’t want to burden their heirs with end-of-life expenses and don’t need a significant payout, one type of permanent insurance that may work is final expenses or burial insurance. This type of permanent policy, intended to cover funeral costs and any outstanding debts, is moderately low-cost but also has a lower death benefit  — usually no more than $25,000.

Unlike most permanent policies, there is no medical exam required. It is a good choice for older adults whose primary goal is to prevent their beneficiaries from facing financial challenges associated with their death.

Frequently asked questions

What is the best life insurance company?

The best life insurance company will be different for everyone based on individual characteristics.  You may want to talk with an independent insurance agent about your needs — and they can help you find the best life insurance companies for what you need.

Which type of policy is better: term or permanent?

Choosing between different types of life insurance can be stressful. Term policies will be the right choice for some people, while permanent policies will work better for others. Talking to an insurance agent can help you decide which policy might be best for you. When deciding between term and permanent life insurance, it may be helpful to know that term life policies are generally cheaper than permanent life insurance policies. Term life insurance may be a good option for someone who only wants coverage while their children are young, for instance. Other people appreciate permanent insurance for providing lifelong coverage and a savings component.

Do I need life insurance if I have no dependents?

You may still want to consider purchasing life insurance if you have no dependents. Many people choose to purchase a life insurance policy with their spouse as the beneficiary. You can also use your life insurance policy’s death benefit to leave a legacy. Some policyholders choose to leave the payout to an organization such as a church, university or charity.

Written by
Lizzie Nealon
Insurance Writer
Lizzie Nealon is a former insurance writer for Bankrate. Her favorite part of the job is making home, auto and life insurance digestible for readers so they can prepare for the future.
Edited by
Insurance Editor