What If You Live More Than Your Term Life Insurance?

What If You Live More Than Your Term Life Insurance?

Term life insurance provides temporary coverage over a fixed period, often between 10 and 30 years. Unlike a permanent life insurance policy, which provides lifelong protection in most circumstances, term life insurance coverage usually ends if you meet the term. 

The only exception is when your term policy is renewable or convertible, which allows you to continue your coverage without purchasing another policy, provided you meet your conversion policy's deadline for conversion or renewal. If you have a term policy or are thinking of buying one, it can be helpful to know what will happen if you do meet the term.

What happens when term life insurance expires?

While term coverage is often purchased assuming that any dependents will grow up and become financially independent by the time they expire, this is not always the case.

Generally, when term life insurance expires, the policy terminates, and no action is required to be taken by the policyholder. A notice is sent by the insurance carrier that the policy is no longer in effect, the policyholder stops paying premiums, and there is no longer a potential death benefit. If the policyholder has a return-of-premium policy, a check will be sent for the amount paid during the entire term of the policy.

The exception is if you have a term conversion rider on your policy, which allows the policyholder to convert the term policy into a permanent insurance policy as you near the end of the term, without any further medical examination. This option may be worth considering for people who need coverage but whose health has declined and may not be able to pass a physical exam. 

Keep in mind that conversion policies usually have strict deadlines for conversion, often several months before your policy expires. So if you have a conversion policy, make sure you know when you need to convert it, if that's something you're interested in doing.

Also, with some term policies, you may have the option to renew your term life insurance policy on an annual basis after the initial term is over. If you choose to renew your policy, you will keep the same coverage that you originally had, but you are only covered for one year at a time. Each time you renew your policy, your premium will most likely increase, as term life premiums become more expensive with age due to increased risk to the insurance carrier.

Buying coverage after your term life insurance expires

Those who would need more coverage after the policy period ends, can start evaluating other options six months to a year before the policy expires. This way, you will have time to add a term conversion rider to your current policy, if required.

Term Conversion

As mentioned, some policies allow a term conversion at the end of the policy term. With this option, the policy is converted into a permanent life policy, without any medical examination. Term conversion policies may come with higher rates, but they allow the insured to retain coverage after their term ends, as long as the policy is converted before the policy's stipulated time limit. 

For many, it may be cheaper to convert than to buy a new policy. While health status will not be variable in eligibility, your new premium will be based on your age at the time of conversion.

However, it is important to know that convertible term life insurance takes proactive planning. You generally need to apply for conversion several months or even a year before the end of your original term. Also, you need to buy a policy with a conversion rider to have this option in the first place. For example, if you buy coverage from a company that does not offer permanent policies, conversion is not possible. Since not all term policies are convertible, it is important to review your policy documents or speak with an agent to learn more about your options.

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What are The Benefits of Life Insurance?

Buy a new Term Policy

For the relatively young who are in good health, the cheapest life insurance option may be to buy a new term policy. If a much lower death benefit and a shorter term are purchased, the premium cost can also be lower, which can be a good option for those who need less coverage than if they bought their initial term policy.

For example, for someone whose youngest child is still in high school when their 20-year term policy expires, an additional 10-year policy may be sufficient to ensure that their The dependent has completed college and no longer needs financial support from their parents' income. ,

Keep in mind that the medical exam will be part of the underwriting process for any new term policy, and if there are new health problems since the first policy,The rate is likely to increase. Age is also a factor - older people pay more for their life insurance policies.

Buy a Permanent Policy

For those who do not have a term conversion rider on their policy, another option is to buy a permanent life insurance policy after the policy term is over. It is important to note that permanent life policies, such as whole life insurance, are more expensive than term ones—sometimes ten times more expensive (but this depends on various individual factors and policy choices).

One of the benefits of a permanent policy is that the coverage is valid until death in most circumstances until the premiums are paid. Permanent policies also have a tax-deferred cash value account. A portion of the premium is placed in a savings vehicle that grows and can be used as collateral for loans or withdrawals.

Although the cash value portion probably won't earn as much interest as some other investments, such as the stock market, it is generally safe and can play an important role in financial planning. Your cash value account will have a limit for interest and returns, information that can be found in your policy documents.

Some experts often do not recommend permanent policies for everyone because of cost, but there are some circumstances where these policies make the most sense. For example, permanent policies can be a good option for someone who has a child with a disability, who will never be financially independent, or a non-working partner who needs to change his lifestyle when the work partner dies. Will need help maintaining it.

Final Expense Insurance

The average funeral cost in the United States is $7,640. For those who don't want to burden their heirs with end-of-life expenses and don't need a significant down payment, final expenses or burial insurance is a type of permanent insurance to consider. Final expense life insurance typically has a low coverage limit of around $25,000, so it is not the best option for income replacement. Additionally, premiums are very expensive as medical examination is not required and the insurance company takes on more risk.

Final expense insurance can be a good option for older adults whose primary goal is to prevent their beneficiaries from facing the financial challenges associated with their death. It may also be suitable for people with pre-existing health conditions, or who have been denied standard life insurance in the past.

Frequently Asked Questions

1. What is the best life insurance company?

The best life insurance company will be different for everyone based on individual characteristics. You may want to talk to an independent insurance agent about your needs - and they can help you find the best life insurance companies for your need.

2. Which type of policy is better: term or permanent?

Choosing between different types of life insurance can be stressful. Term policies will be the right choice for some people, while permanent policies will work better for others. When deciding between term and permanent life insurance, it can be helpful to know that term life policies are generally cheaper than permanent life insurance policies when you are young. For example, term life insurance can be a good option for someone who only wants coverage before their children graduate from college. Others appreciate permanent insurance for providing lifetime coverage and a savings component.

3. Do I need life insurance if I have no dependents?

You can consider buying life insurance even if you do not have any dependents. Many people choose to buy a life insurance policy with their spouse as the beneficiary. You can also use the death benefit of your life insurance policy to leave an inheritance. Some policyholders choose to leave the payment to an organization such as a church, university or charity.

4. Can you cancel a life insurance policy?

Yes, you can cancel the life insurance policy at any time. If you have a term policy, you can either formally cancel with your insurance company, or you can simply stop paying premiums. With permanent life insurance, however, the cancellation process can be more complicated. You will usually need to start the cancellation process by notifying your insurance company. Depending on how long the policy has been in force, you may have to pay a surrender charge. In most cases, you are allowed to keep the insured cash value when you cancel a permanent life insurance policy, but the cancellation fee will be deducted from your final payment. Check your specific policy or speak with your insurance agent to learn more about the process and any potential penalties for cancellation.

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