Learn what options you have after your term life insurance policy expires
For many families, purchasing life insurance is an important decision. However, once you've done the research and made the purchase, the conversation fades from daily life. As long as you pay the premium, you have peace of mind knowing that, should the worst happen, your family will be taken care of. But if you've purchased a term life insurance policy, there will be another important question you must ask sooner or later: What happens when your term life insurance expires? What options do you have if you still need coverage? There are a number of things to consider, but one thing is certain: The time to talk about it is now!
How does term life insurance work?
Before we dive deeper into what happens after your term life insurance
expires, it's important to understand exactly what a term life insurance policy is, and why you might get one in the first place.
Term life insurance is aptly named; it is a life insurance policy that covers you for a specific period of time, or a "term." Usually, insurance companies offer policies for 10, 20, or 30 year periods, but it isn't uncommon to find terms that land somewhere in between, or perhaps below.
Ideally, the length of your policy should match the length of your financial obligations, such as mortgages, debts, or the costs associated with raising a family and children. As long as the premiums are paid, the policy lasts for the duration of the term, providing beneficiaries with protection in the form of a death benefit in the event of your passing.
Because the coverage only lasts for a fixed amount of time, you are usually able to get a relatively large amount of coverage for a lower fixed premium. However, the tradeoff is that once that term ends, the coverage stops and no benefit is paid.
What options do you have after your term life insurance policy expires?
There are a number of reasons that a person might need coverage after their term life insurance policy expires. If you still have mortgage payments, have other outstanding debts, or family members that still depend on your income, you may need to consider extending your coverage in some way. Fortunately, there are a number of solutions available.
Renew your term policy
At the end of your term, some policies will allow you to continue to renew them on an annual basis. In some cases, this allows you to extend your coverage without having to go through the underwriting process and getting a medical exam again. Of course, this is all subject to your policy, your provider, and your age.
However, unlike the previous term, your premiums will likely increase, and may increase from year to year. If you simply need to extend your life insurance coverage for a few more years beyond the previously expired term policy, this could be a good option for you.
Purchase another term life policy
If the initial term policy your purchased was shorter, and you still have financial obligations after it expires, then you may want to consider simply purchasing another term policy. Depending on your age at that time, you may want to go with a shorter term, such as 5 years, rather than 20 or 30. Because you are inevitably older than you were at the time you purchased the first policy, your rates for a new one are likely to be higher, and selecting a shorter term the second time around can help you save money on your premium.
It's also important to consider that as you age, the application process will likely require further medical questions and perhaps a medical exam. However, purchasing another term life policy is often a great option for individuals who are still relatively young and in good health
Convert your term life insurance policy to a permanent life insurance policy
As the name suggests, a permanent life insurance policy lasts for your entire life as long as the premium is paid. For this reason, many policies and insurance providers offer what is known as a "conversion," which allows you to convert an expiring term life policy into a permanent policy, such as whole life insurance.
Whole life policies are desirable for some people because they have an investment component, or a return, in addition to the death benefit. For this reason, whole life, and permanent life insurance policies in general, are more expensive than term life policies. To help save money on the increased premium, many carriers
will allow you to convert only a portion of the previous coverage amount.
However, it's important to consider this option before your current term policy expires as there will likely be a deadline for the conversion. Your provider and policy may also have an age limit for conversion, too, so make sure to consult your policy and agent beforehand.
Alternatively, if your term policy can't be converted into a permanent or whole life policy, or you simply want to explore other options, you may consider simply purchasing a new permanent life insurance policy.
When term life insurance expires do you get your money back?
In most cases, no, term life insurance policies do not pay out after they expire. Term life insurance policies are a great way for individuals to provide affordable protection for their beneficiaries during the time in their lives where their financial obligations are the greatest. However, they are designed as an investment tool. You purchase them as a precaution to protect your family, and hopefully, you never need to use it. If you are looking for an investment component from your life insurance policy, a whole life policy is likely your best bet.
That having been said, there are certain term policies that do pay a return, known as "return of premium." However, term life insurance policies are able to provide a greater amount of coverage at a lower fixed premium precisely because they only cover you for a limited period of time, and because there is no return after that period. So, in the case of a return of premium term policy, your premiums are going to be much more expensive than they would with a regular term policy.
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To learn more about Germania Life’s life insurance products, visit the Germania Life website here or call 1-800-392-2202 (ext. 2060).
What's the difference between term and whole life insurance? Read our blog for more information