What happens to term life insurance at the end of the term—or coverage period—for which you purchased it? When the term ends, so does your life insurance policy. But what happens next depends on the type of term insurance policy you purchased. Some of the options might surprise you.
What Is Term Life Insurance?
A term life insurance policy provides coverage for a limited period—or term. The duration of a plan is usually 1 to 30 years. Although most insurance companies offer policies in increments of ten years, some offer five-year plans. Several factors influence your premiums, including:
- Age
- Health
- Lifestyle
- Medical history
- Occupation
Five Types of Term Life Insurance and What Happens at the End of the Term
There are different types of term insurance, and not all of them are reviewed below. Your options depend on what’s offered by the insurance company you choose.
1. Level Term
Your premiums are fixed, or level, for the entire term, regardless of whether it’s 1, 10, 20, or 30 years. Your premiums, in part, depend on your age when you purchase the policy. As you age, it’s more expensive for a company to insure you, so your premiums for a new policy will be higher. But they will be fixed throughout the term.
End of term
Most level term policies allow you to apply for renewal or convert to a whole life or universal life policy. But renewal isn’t guaranteed, and you’ll likely need a medical examination.
2. Increasing Term
The death benefit increases each year—usually within 2 to 10 percent. As the payout for your beneficiary builds over time, your premiums will increase. Rising premiums make this option less accessible than level term life insurance. But if you’re young, you might like the idea of having some coverage now and increasing it as you age.
End of term
Depending on your age, you might have the option to convert to a permanent life insurance policy. Conversion is often allowed throughout the length of your plan, except during the first year.
3. Decreasing Term
Decreasing term life insurance is only available through a few insurance companies. The terms are 1 to 30 years, premiums are fixed, and the payout for your beneficiaries decreases over time. Some people refer to decreasing term insurance as mortgage protection insurance, because your survivors can use it to pay off a mortgage or other debt.
As an alternative, you can buy level term life insurance and decrease the face value of your policy as you pay off debts over time. What’s best for you? Compare the cost of premiums for level and decreasing term insurance. And compare the payout your beneficiaries will receive if you die.
End of term
Before the term ends—and when it ends—some plans offer the option to convert it to a whole life insurance policy that builds cash value.
4. Renewable Term
You can purchase term life insurance that guarantees your right to renew the policy. Depending on the insurance company and policy, short- and long-term plans are available. But the premiums for annually renewable policies increase over time.
End of term
Although you won’t need an exam, you may be required to complete a health history form to renew your policy. Your age and current health will affect your premiums. And your new policy may not be renewable. Insurance companies vary with plans that renew automatically vs. renewing upon your request.
5. Return-of-Premium Term
Although the policy functions as a level term life policy with fixed premiums, the premiums are much higher.
End of term
If you outlive the term, your insurance company will return all the premiums you paid throughout the life of the policy. Exclusions apply if you cancel the policy or borrow money from it and don’t pay it back. Your plan might give you options: continue coverage—but your premiums will be much higher—or convert the policy to permanent life insurance.
Get Professional Advice That Works
You can find a term life insurance policy that ends with a predictable outcome. You’ll get the most out of your term life policy by consulting with an insurance agent who works to understand your financial needs and will help you find a plan that matches them. John Hunt of Hunt Insurance provides term life insurance for the Raleigh, Durham, and Chapel Hill areas. He can help. Call us for a consultation or a hassle-free quote at 919-840-8418.
