What Happens If You Outlive Your Term Life Policy

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What Happens If You Outlive Your Term Life Policy

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Life insurance caters to your family’s financial security. It’s popular and about 60% of Americans have bought such cover. If you want to purchase life insurance, the most common option is term life insurance. This policy covers a designated duration ranging from, for instance, 10, 20, or 30 years. There’s a cash payout (death benefit) for beneficiaries in case of the contributor’s death during this period.

If you plan to invest in this policy, start by understanding how it works. This is an in-depth look into this policy to answer all your queries.

Explaining Term Life Insurance

With this policy, coverage is only during the stated duration. If the contributor passes away within this term, the listed beneficiaries get a cash payout referred to as a death benefit. It features low premiums because of the reduced overall risk to the insurers.

Benefits of term insurance coverage include:

  1. Affordability: This is a more affordable way to take care of your family’s financial future if you die.

  2. Simplicity: This is an easy-to-understand form of coverage. You can understand it more efficiently as opposed to other insurance products.

  3. Flexibility: It’s up to you to choose how long you want this coverage to last, depending on your unique financial situation. For instance, if your children are in school, you can buy a term lasting over their schooling years till after college.

  4. Less stress: Knowing that your family’s financial security is safe in case of untimely death gives you a lot of peace. This is a relief even to allow you to continue a less stressful living.

There’s no saving aspect, meaning the greatest advantage is the payout beneficiaries get in case of the contributor’s death. This one-off payment will have a big impact on those you leave behind as it eases any financial strain they might have suffered in your absence.

Types of term life insurance include:

  1. Level term: It applies for a designated period with constant payout and premiums. Monthly payments are high for the provider to offset the cost of insurance.

  2. Convertible term: If your term policy has a few years left to expire, you can convert it into entire life or 

     with this policy.

  3. Decreasing term: The payout keeps going down each year.

  4. Annually renewable term: You renew the policy annually, and there’s no set period of coverage. Premiums change every year as the provider factors things such as health, age, among others. As you age, the premiums will keep going up and this makes this policy relatively expensive.

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Understanding How Term Life Insurance Works

It all starts by providers setting premiums, which are mostly monthly. To get the figure that every contributor will pay, the provider considers health condition, age at the time of the application, type of career, lifestyle, among other factors.

A medical assessment is an integral part of the eligibility process. Insurance providers want to know if you’re too risky to cover. The family’s medical history can also come under scrutiny to discover any genetic medical conditions. Other considerations include any medical drugs you’re currently using, history of smoking, nature of work, driving history, and hobbies.

In the event of an unexpected death of a contributor, the policy document’s cash amount is paid out to the listed beneficiaries if the policy is still valid. If you have such coverage, the one-off payment is a significant boost to those you leave behind. They can overcome some financial disruptions even after you’re gone. In a case where the term of the policy has elapsed, it means there’s no coverage. It follows then that there’s no cash payment if the contributor passes away. You have an option of term policy renewal for the continued protection of your family. A renewal of the policy requires recalculating of premiums. The monthly payments go up depending on your age at the time of applying for a renewal.

To better understand how this works, here’s a practical example. Gilbert buys a $500,000 15-year policy at a monthly premium of $75. In case Gilbert passes away inside this term, his family receives a one-off death benefit of $500,000.

However, if the death is after the 15 years, the insurer doesn’t pay any money.

Is Your Policy Expiring? Here’s what to do

When the term policy nears its expiration, it’s good to think about the other options available to protect your family’s welfare. This is one of the best gifts for your family when you’re no longer around. Even after death, everyone wishes the best for their loved ones and therefore consider alternative coverage.

Here are some things you can do at this stage.

Continue with the Policy

Look for a guaranteed renewability clause in the policy contract or talk to your provider to know if an extension is possible. This is the best way out to continue providing financial cover for your dependents in case of your untimely death.

The process involves a review of your payments by the provider and these will most likely go up. However, there’s no new health examination involved. This option, sometimes is available up to the age of 95 years.

If you have developed some health complications over the years, you still qualify for life insurance. Normally, eligibility for a new term policy is tough if you have been diagnosed with a life-threatening or terminal disease. By extending this coverage, you easily provide financial protection for your family despite your change in health. 

Combine Several Smaller Policies

Buying one large policy to cover your family’s financial well-being sufficiently is not easy. Problems mostly arise if you have health complications.

One smart way out of this situation is to buy smaller insurance policies. These add up to provide adequate financial protection for your family.

Shop for a New Term Policy

You can qualify for a new term policy despite your advancing age after the current one’s expiry.

Stiff competition in this industry means providers have to go to extra lengths to attract clients. Some offer new cover up to 80 years and there might be no need for another health evaluation (especially for lower coverage amounts). A recent survey shows that about 1 in 5 of those with life insurance are underinsured.

If you start shopping, you'll find many products on the insurance market to suit your financial needs.

Use the Conversion Provision

A conversion clause/ provision allows the policyholder to change the term policy about to expire into a whole life/universal life policy. It is a godsend as you don’t need medical examination to qualify.

Talk to your insurer about how this conversion provision works and ask it’s available for your contract. If it’s available, start the conversion process before the expiry of the term.

Buy Burial Insurance Cover

This is a type of whole life insurance but with a smaller payout. The beneficiaries get around $25000 to $35000 to sort out funeral expenses though the payout can also pay other pending bills. In 2019, 30% of policyholders said they bought life insurance to cover burial or final expenses.

Most providers don’t include a medical examination as part of the eligibility. In essence, this is an alternative if you want to provide additional financial cover for your family if you pass away.

Can You Get a Refund after Term Life Insurance Expires?

A major concern among people interested who wish to buy this kind of insurance is what would happen to contributions after the term elapses, and they’re still alive.

Before you invest in this kind of policy, you have to appreciate that the value is in the death benefit in case of your demise within the term.

If the policy nears expiry and you don’t take any steps, you forego all the premiums paid over the years. You’re no longer covered once the term elapses and there’s no way of getting your money back. For this reason, you should assess the options available to continue protecting your family's financial security.

Final Thoughts

Allowing your term policy to expire means you have no more need for any more coverage. However, it’s advisable to look for alternative ways to protect those who depend on you if you die. When the term life insurance is about to expire, look at other viable options discussed here. There’s the option of extending the term policy to continue enjoying the benefits. You also have the option of converting the policy if there's such a clause. You can also shop for a new policy, combine several smaller covers or go for a burial policy. With this information, you can make the best call to protect your family.

Insurance has always been a complex topic and with more products on the market, things have become even more confusing. Shopping for the right plan or the best rates has become tougher. Luckily, PolicyScout helps you find best insurance rates in one place. You can also learn a lot more about all kinds of insurance policies available on the market. If you have any questions about insurance, check out the wide variety of resources available on the site.

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