What Happens If Your Term Life Insurance Policy Isn't Renewed?

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Term life insurance, unlike permanent life insurance, is only valid for a set length of time, such as 10, 20, or 30 years.

Your beneficiary will receive a payout if you die during that time; if you die after the insurance has ended, they will receive nothing. So, what should you do if your term is up but you still require life insurance?

TAKEAWAYS IMPORTANT

• You may need new insurance if your term insurance coverage is about to expire and you still have dependents who rely on your income.
• You may be able to renew your current insurance on an annual basis, but this will likely be costly.
• You might be able to get a new and reasonable term policy if you're in pretty excellent health. Some insurance firms offer policies to people up to the age of 80.

Term Life Insurance: An Overview

The main goal of life insurance is to offer financial support to your dependents in the event that you pass away prematurely. Someone might buy a 30-year term policy at the age of 40, assuming that by the time they reach 70, their children will be grown, out of the house, and financially independent.

The benefit of term insurance over whole life and other forms of permanent insurance is that it is far less expensive, allowing the policyholder to get a bigger death benefit for the same amount of money. The negative is that it ultimately expires, at which point the policyholder may find it difficult to obtain another coverage because he or she is now older.

This is not a problem for many, if not all, policyholders. Assume, however, that our hypothetical 40-year-old has a 30-year term policy and is approaching 70 years old, with dependents. Perhaps one of their children has developed unanticipated physical or psychological issues and is unable to sustain himself. Alternatively, it's possible that the policyholder is now responsible for the supplemental insurance.

In such circumstances, the policyholder may wish to preserve some life insurance. So, what are the alternatives?

What to Do If Your Insurance Policy Has Expired

If your insurance is still active and hasn't reached the end of its term, you'll have the most possibilities. It's best to start planning at least a year ahead of time. Here are some things to think about.

Extend Your Protection

Many term policies include a guaranteed renewability clause that allows you to keep your insurance in force after the original term ends as long as you pay your premiums. While your rates are likely to increase each year—possibly significantly—based on your present age, you won't have to undergo a new physical examination.

If you can afford it, some policies allow you to renew on this basis until you're 95 years old.

Change the policy to a permanent one.

Your term insurance may also allow you to convert to a whole life or universal life policy without having to take a physical test. The new insurance coverage may last the remainder of your life or as long as you require it. Your new policy's premium will be greater than your current term insurance premium, but you may be able to convert to a policy with a lower death benefit in exchange for a lower premium if that is more convenient for you.

When it comes to when you can make this transition (there may be age restrictions), policies vary, so check yours or contact your insurance company or agent to find out.

Look for a new policy by shopping around.

If your existing term insurance is coming to an end, don't assume you won't be able to get a new one because of your age. Some insurance companies provide coverage for persons up to the age of 80. A medical checkup is usually required, especially if the coverage is for more than a specified amount, such as $50,000, but some lower-value policies do not.

Investigate the various products to obtain the best term life insurance for you.

Combining a number of smaller policies

If you have health problems that prevent you from purchasing a large enough term insurance policy, you may be able to put up a portfolio of smaller policies to cover your needs. These policies may not necessitate a physical examination, but they may request health information.

You may be eligible for group life insurance through your employer, if you're still working, or through a trade association, college alumni club, or other organization to which you belong, in addition to purchasing one or more small policies through an insurance agent or directly from insurance companies.

Purchase a Burial Insurance Policy

Final expenditure or burial insurance is another possibility. These are usually entire life insurance plans with low payouts, such as $20,000 or $25,000. They may not require a medical exam and, despite their ominous moniker, will offer funds for your beneficiaries to spend as they see fit.

Final Thoughts

If your term life insurance policy is about to expire, the first thing you should ask yourself is whether you still require coverage. You may not be able to do so if your former dependents are no longer reliant on your income.

However, if you discover that you do require insurance, there are various options available. If your health is in question, your best option may be to try to renew or convert your current term life policy to a permanent policy with that insurer. If you're in good health, shopping around for a new term life insurance coverage could save you money.