Term Life Insurance: If you possess a term life insurance policy or are contemplating getting one, you likely understand the concept of selecting a specific coverage duration. Commonly, term life insurance policies provide coverage for 10, 15, 20, or even 30 years. Alternatively, some term life insurance plans may offer coverage until a designated age, such as 80.
However, what occurs with term life insurance if the policyholder survives beyond the designated term? To answer that, it’s important to understand exactly how term life insurance works.
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Understanding Term Life Insurance
The primary objective of life insurance is to provide financial security for your loved ones in the event of your untimely passing. For instance, a person might decide to purchase a 30-year term life insurance policy at the age of 40, anticipating that by the time they turn 70, their children will have grown up, left home, and become financially independent.
One of the advantages of term insurance compared to whole life and other permanent insurance types is its affordability. With the same amount of money, policyholders can obtain a larger death benefit. However, a drawback of term insurance is that it eventually expires, making it challenging for older policyholders to obtain a new policy.
While this is not an issue for many individuals, let’s consider a hypothetical scenario where a 40-year-old policyholder with a 30-year term policy is nearing the age of 70 and still has dependents. Perhaps one of their children is facing unexpected physical or psychological challenges and cannot support themselves, or maybe the policyholder has assumed the responsibility of caring for a grandchild.
In such circumstances, the policyholder may wish to explore options to maintain some form of life insurance coverage. Now, what exactly are the available choices?
What to Do If Your Policy Is Expiring
To have the widest range of options, it is ideal if your life insurance policy is still active and has not reached its term’s end. It is recommended to start making plans at least a year in advance of that point. Here are some steps you should consider:
Extend Your Coverage
To ensure a seamless transition and maintain your life insurance coverage beyond the original term, it’s important to explore the provisions offered by many term policies. One such provision is the guaranteed renewability feature, which enables policyholders to extend their insurance beyond the initial term by simply paying the premiums. This provision often eliminates the need for a new physical examination.
Although it’s worth noting that premiums are likely to increase each year, primarily based on your current age, this renewability provision can provide peace of mind. In fact, certain policies allow you to renew your coverage in this manner up to the age of 95.
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Convert to a Permanent Policy
Your term life insurance policy may offer an additional provision known as a conversion option, which allows you to convert your policy into a whole life or universal life insurance policy.
The conversion process typically does not require a physical examination. By converting, you can extend your coverage for the duration of your life or as long as you deem necessary.
It’s important to note that the premium for the new policy will be higher compared to what you were paying for your term insurance. However, depending on your preference, you may have the flexibility to convert to a policy with a reduced death benefit, resulting in a lower premium.
Each policy varies in terms of when the conversion option can be exercised, often with age limitations. To determine the specific details of your policy and the conversion process, it is recommended to review your policy documents or reach out to your insurance company or agent for further assistance.
Shop Around for a New Policy
As you near the conclusion of your existing term life insurance policy, it’s important not to assume that obtaining a new one is impossible due to your age. Several insurance companies offer policies for individuals up to the age of 80, providing opportunities for coverage.
In most cases, you will be required to undergo a medical examination, particularly if the policy value exceeds a specific threshold, such as $50,000. However, for policies with lower coverage amounts, a physical examination may not be necessary.
To secure the best term life insurance policy, financial advisors often advise researching the available options specifically tailored for older individuals. Conducting thorough research will enable you to make an informed decision and find a policy that suits your needs.
Combine Several Smaller Policies
If you face health challenges that hinder your ability to obtain a substantial life insurance policy, there is an alternative approach you can consider. You may have the option to assemble a collection of smaller policies that, when combined, provide the coverage you require.
These smaller policies may not necessitate a physical examination but could require you to provide certain health-related information during the application process.
In addition to purchasing multiple smaller policies either through an insurance agent or directly from insurance companies, you might also qualify for group life insurance through your current employer, provided you are still employed. Furthermore, membership in a trade association, college alumni club, or another affiliated organization could make you eligible for group life insurance benefits.
Exploring these avenues can help you create a comprehensive coverage portfolio that addresses your specific needs and circumstances.
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Buy a Burial Policy
Another viable alternative to consider is final expense or burial insurance. These types of insurance policies are usually whole life policies with modest coverage amounts, typically around $20,000 or $25,000.
One advantage of these policies is that they often do not require a medical examination. Despite their somber-sounding name, final expense or burial insurance policies offer financial assistance to your beneficiaries, who can utilize the funds for various purposes, not limited solely to burial expenses.
By exploring final expense or burial insurance options, you can secure a policy that provides a meaningful payout to support your loved ones in their time of need.
Do You Get Your Money Back At the End of a Term Life Insurance?
When your term life insurance policy reaches its end, you do not receive a refund of the premiums you paid. Term life insurance provides coverage for a specific duration, regardless of whether you utilized it during that time.
What Happens When a Term Life Insurance Policy Matures?
Upon maturity of a term life insurance policy, your coverage comes to an end. However, some insurance companies may offer options to extend your coverage or purchase a permanent life insurance policy as a replacement.
Can You Extend Term Life Insurance?
Certain life insurance carriers provide the option to extend your life insurance policy. It’s important to note that extending the policy may result in higher premiums due to age or require a new health examination.
What Happens After 20-Year Term Life Insurance?
If you have a 20-year life insurance policy and pass away within the designated term, your beneficiaries will receive the death benefit. However, if you outlive the policy term, it will expire without any benefit payout.
What Happens to the Money After Term Life Insurance Expires?
After the expiration of your life insurance, the premiums you paid for the death benefit remain with the insurance company. There is no refund or return of these premiums.
The Bottom Line
When considering a soon-to-expire term life insurance policy, it’s essential to evaluate whether you still require insurance coverage. If your dependents no longer rely on your income, you may no longer need it.
However, if insurance is still necessary, there are various options to explore. If your health is uncertain, extending your current term life policy or converting it to a permanent policy with the same insurer might be beneficial. On the other hand, if you are in good health, shopping around for a new term life policy could potentially offer more affordable options.