The importance of life insurance cannot be underrated. We all need to ensure that our family and loved ones are financially secured after we have gone, maybe to help cover a mortgage or replace the family’s lost income.
Term life insurance policy comes with an expiry date. They are primarily purchased for short-term obligations. They mostly last between 5-30 years. But you might wonder, what happens if I outlive my term life insurance? What happens if your plan expires while you are still alive and kicking?
This article will guide you into the options available if your term life insurance expires while you are still alive.
What Happens If I Outlive My Term Life Insurance Policy?
What happens to term life insurance if you don’t die?
When your term life insurance policy expires, you stop paying monthly premiums to your insurance company. You will no longer have any coverage, but you can choose to convert the term life insurance policy to a permanent policy or buy a new term insurance policy.
The insurance company keeps all your premiums within your policy’s term. You will not get your premiums refunded. Just like other types of insurance, you pay for coverage and receive benefits if something happens to you and don’t receive anything if nothing happens.
Your insurer will notify you that your policy is no longer in effect, you stop paying the premiums, and there are no potential death benefits. However, if you have a return-of-premium policy, you would receive a check for the premiums paid throughout the policy’s term.
While permanent life insurance policies last a lifetime, term life insurance policy ends when you outlive your term. You can renew or convert the policy as long as you meet the policy’s guidelines for conversion and renewal.
What Do I Do When My Term Life Insurance Policy Expires?
Many Canadians buy term life insurance policies hoping they will never use them. They purchase it to secure their family’s future financially.
So, when your term life insurance policy expires, the first thing is to assess your latest financial situation and explore your options.
Do you still need coverage? Do you still have people who depend on you financially? Can your savings sustain them into maturity? Do you still have a mortgage to pay off? Does your family depend on your income to maintain their quality of life? Will your death financially affect anyone?
If you consider these questions honestly, you will know the next steps to take regarding your insurance. If you realize that you still need coverage after your term life insurance expires, contact your insurance advisor as early as six months before the expiration date. This gives you enough time to study your options and choose the best.
What Do I Do If I No Longer Need Coverage After My Term Life Insurance Expires?
Suppose you find that you no longer require more insurance coverage after your term life insurance expires. If your children can provide for themselves, you are debt-free, have enough savings for retirement and end-of-life expenses, and your partner can maintain their living expenses without your income.
In that case, you would no longer need more life insurance coverage. Just pay out the last premium for your policy and wait out the policy. When the term ends, your policy will end too.
Once your policy ends, you will no longer be covered, and your beneficiaries will not receive any payout upon your death. Even if you die a day after your policy ends, you will not receive any death benefits.
Can I Cash Out A Term Life Insurance Policy?
There is no cash value component on the term life insurance policy. Unlike whole life insurance, you cannot cash out the term life insurance policy.
However, if you purchase a return-of-premium term life insurance policy, you would receive a refund of your premiums for outliving your policy.
The return of premium policy isn’t recommended due to its high cost.
What Do I Do If I Still Need Coverage After My Term Life Insurance Expires?
Suppose you still need more insurance; maybe you still have dependents or financial responsibilities you need to attend to. In that case, after your term life insurance policy expires, there are other options you can apply for.
Because your present needs and financial situation are different now, you can switch your policy to another one.
While you would not be able to technically extend your term life insurance policy, you can convert to a permanent life insurance policy, renew your term with your current insurer, or buy a completely new term life insurance policy.
How to renew my term life insurance policy
When your current term life insurance policy expires, you can extend the policy’s term beyond the initially agreed date by renewing your policy with the insurance company.
A renewability rider is offered as a feature of your policy when you purchase it. If you prefer your current coverage and current insurance company such as Manulife, and wouldn’t mind paying more expensive premiums, renewing your term life insurance policy would be easier.
When you renew your policy, you are saved from the stress of shopping for a new insurance policy, and you don’t have to research for a new term policy. You would only need to pay the set premiums for the new policy.
Also, when you renew your term life insurance policy, you don’t have to display proof of insurability through a comprehensive medical exam. Suppose your health has drastically declined over the years of your first policy’s term. In that case, renewing your policy would save you from being disqualified because of your health.
However, when you renew your policy, you must pay 5-10 times more premiums than your first coverage. The insurance provider would insure you without any medical examination, so there is an assumption of health deterioration during the last term. This causes the new policy to be more expensive.
If you are in good health and have no long-term medical issues, you should go for a brand new policy.
Buy a new life insurance policy
There are many advantages to buying a brand new coverage, though it requires work. Suppose your financial needs have remained the same or might have increased. In that case, you should consider getting a new life insurance policy.
When buying a new coverage, there are several options available to choose from. You can buy another term life insurance, whole life insurance, universal life insurance, or no medical and guaranteed policies.
If you are in good health after the expiration of your first coverage, you can apply for full medical underwritten coverage. This will generate a much lower monthly premium. You would not have to pay for the risk involved in your health’s uncertainty.
Also, you can go for more or smaller coverage amounts, as much as you need. You can take out smaller coverage if your financial obligations have reduced and take out more coverage if your need more money.
However, talk with your experienced insurance advisor before your term life insurance policy expires. They will help you decide if you need to apply for brand new coverage or convert the previous term life insurance policy into a permanent one.
Convert your term life insurance policy into a permanent life insurance policy
When your term life insurance expires, you have the option of converting it into a whole life insurance plan. Convertibility is a rider that comes with your term life insurance when you purchase it.
If you convert your term life insurance to whole life insurance, you can enjoy the benefits of having a cash value. The whole life insurance policy has a cash value component that works like an investment vehicle to reduce your tax burden. Also, your beneficiaries would receive a death benefit upon your death.
Just like renewability, convertibility doesn’t require proof of insurability. You won’t have to undergo medical examinations or check-ups. So, if you have developed a medical condition after your first policy’s term, you can consider this option.
However, converting your policy also comes with higher premiums. Your premiums go up substantially when you convert your term life insurance to a whole life insurance. Also, you can only convert your policy to selected policies which your insurance company included in your rider.
If you wonder, what happens if I outlive my term life insurance policy? Outliving your term life insurance is good news. But it comes with the dilemma of foregoing your insurance policy or getting another one.
Only you can decide what is best for you. Weigh your options, talk to an experienced insurance advisor well before your term expires, and see what options are most suitable for you.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
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