What happens when term life insurance expires?
If your term life policy is nearing the end of its guarantee period, you may be wondering what happens next.
The purpose of life insurance is to help financially protect your loved ones in the event of your death. But what happens if you outlive your term life insurance? It’s important to understand how life insurance works and know your options when approaching your policy’s end date to help ensure continued coverage if needed.
Can you extend a term life insurance policy?
When most term life policies reach the end of their level premium, they typically become annually renewable term insurance. If you continue paying the premiums on time, it will remain in force and renew every year until its expiration.
You may be thinking why not just keep your current policy and let it renew every year after the guarantee period? Well, the renewal process results in one important change to your policy — your premium cost. Your policy can renew, but your premiums will likely increase each year based on your age.
If you have a term life insurance policy about to reach the end of its guaranteed level premium period, take time to review your options along with some actions you may want to take to get the most out of your life insurance coverage.
Option 1: Convert to a permanent life policy
Many term policies have a conversion privilege, which allows you to convert all or a portion of your coverage to a whole life policy, typically without undergoing additional underwriting or a medical exam. You’ll no longer need to worry about your premiums increasing yearly because a permanent policy offers level premiums for as long as you live (if your premiums are paid on time), unlike a term policy, which only offers level premiums for a certain number of years.
Pros:
- Your premiums will remain level for the rest of your life
- A lifetime policy (if you remain current on your payments)
- No medical exam is needed
- Your policy builds guaranteed cash value
Cons:
- A permanent policy may not be as affordable as a term policy
Option 2: Purchase a new term life policy
If you qualify for another term life policy, you’ll once again have guaranteed level premiums for the length of the term. This can be a viable choice if you have a specific need for coverage, for a certain amount of time. For example, helping to provide money to pay off a mortgage, provide for education expenses or income replacement.
Pros:
- Many term policies are available in 10-, 20- and 30-year increments
- Typically, a term policy is more affordable than a permanent policy
- If needed, you still may have a conversion privilege
Cons:
- Remember, it’s not designed to be permanent
- You may be required to undergo a medical exam to qualify
- Depending on your age, you may not qualify for the length of the term policy you want
- Term policies don’t build cash value
- You may have a higher premium than your previous policy due to age and health status
Option 3: Keep your current term life policy
You also have the option of keeping your term life policy even after the policy has reached the end of its term. However, if you choose this option, remember that your policy will automatically convert to an annual renewable term life insurance and your premiums will increase due to your age at the time of renewal.
Pros:
- Your current coverage will remain in force (if your premiums are paid on time)
- A medical exam is usually not required for renewal
Cons:
- Your premiums will increase every year
- Your policy may have an expiration age, typically at age 95
Don’t forget to discuss these options with your State Farm® agent before your guaranteed level term insurance period expires. If you are unsure when that is, your agent can help you find it.
When it’s time to revisit your life insurance needs
Try to revisit your life insurance needs regularly, as they can often change over time. As you think about what you want to do with your current term policy, here are some key factors to consider when weighing your life insurance options:
- Your current life stage — often times our life insurance needs can be affected by what stage of life we’re in.
- Your spouse or significant other — your partner may depend on your income to help meet monthly expenses. Having life insurance could help avoid putting them in a financial bind.
- Your children or grandchildren — think about the legacy you want to leave. Perhaps you want to help the young ones in your life with education costs.
- Rent or mortgage payments — life insurance can help provide the financial protection that helps your loved ones stay in their home, even when they no longer have your income.
You can get a life insurance quote now, or give us a few details and a State Farm® agent will reach out to you.