Term Life Insurance: What You Need to Know Before Your Policy Expires

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Term life insurance is a type of life insurance that only lasts for a fixed period of time. Learn what happens when your policy expires and what options you have to keep your coverage/PHOTO COURTESY: Facebook

Term life insurance is a popular choice for many people who want to protect their loved ones from financial hardship in case of their death.

Unlike permanent life insurance, which covers you for your whole life, term life insurance only lasts for a specific period, usually 10 to 30 years.

This makes it more affordable and simpler to understand, but it also comes with some risks.

For example, what if you outlive your policy and need coverage later in life?

Or what if you miss a payment and lose your coverage altogether?

These are some of the questions that we will address in this article:

What Does It Mean for a Term Life Insurance Policy to Mature?

A term life insurance policy matures when the coverage period ends.

For example, if a policyholder buys a 20-year term life insurance policy at age 40, the policy will mature when they turn 60.

At that point, the policy will no longer provide any death benefit to the beneficiaries if the policyholder dies.

There are two ways that a  policy can mature.

The first way is when the policyholder dies within the term.

In that case, the beneficiaries will receive the full death benefit, which is the amount of money that the policyholder chose when they bought the policy.

The death benefit is usually tax-free and can be used by the beneficiaries for any purpose, such as paying off debts, covering funeral costs, or providing income replacement.

The second way that a term life insurance policy can mature is when the policyholder survives the term.

In that case, the policy will terminate and the policyholder will no longer have any life insurance coverage.

Depending on the type of policy, the policyholder may or may not receive any money back from the policy.

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Types of Term Life Insurance

Choosing the right policy can be overwhelming, with various options available.

Here’s a breakdown of the most common types to help you navigate the process:

Type of Term Life Insurance Description Advantages Disadvantages Image
Level Term Life The most common type offers consistent death benefits throughout the term Simple and straightforward, predictable premiums Premiums might be higher in early years compared to other types
Increasing Term Life Death benefit grows over time, often in line with inflation Provides coverage that adjusts to your future financial needs, ideal for young families with increasing expenses Premiums typically rise significantly over time
Decreasing Term Life Death benefit gradually decreases over time Typically cheaper than other types, suitable for covering specific debts like mortgages that decrease over time Offers less overall coverage, may not provide sufficient protection in later years

What Are the Options for the Policyholder When the Term Expires?

When a term life insurance policy matures, the policyholder has a few options to consider.

Some of these options are:

Renew the policy.

Some policies allow the policyholder to renew the policy for another term, usually at a higher premium rate.

The renewal option may be automatic or require the policyholder to apply and undergo a medical exam.

The renewal option may also have a limit on the number of times or the age until which the policy can be renewed.

Convert the policy.

Some policies allow the policyholder to convert the policy into a permanent life insurance policy, such as whole life or universal life.

The conversion option may be available at any time during the term or within a specified period before the term expires

. The conversion option may also require the policyholder to pay a higher premium or a conversion fee.

The advantage of converting the policy is that the policyholder can keep the life insurance coverage for the rest of their life, without having to undergo a medical exam or prove their insurability.

Buy a new policy.

The policyholder can also choose to buy a new policy or a different type of life insurance policy from the same or a different insurer.

They will have to apply and undergo a medical exam for the new policy, and the premium rate will depend on their age, health, and other factors.

The policyholder may also lose some benefits or features that they had with the old policy, such as riders or discounts.

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Can the Policyholder Get Any Money Back from a Term Life Insurance Policy?

Most term life insurance policies do not offer any cash value or refund to the policyholder when the policy matures.

However, there are some exceptions, such as:

Return of premium term life insurance.

This is a type that promises to return all or a portion of the premiums paid by the policyholder if they survive the term.

The return of premium option usually comes at a higher premium rate than a regular policy, and the policyholder may have to meet certain conditions to qualify for the refund, such as paying the premiums on time and not making any claims.

Term life insurance with living benefits.

This is a type of term life insurance that allows the policyholder to access a part of the death benefit while they are still alive, under certain circumstances, such as being diagnosed with a terminal illness, a chronic illness, or a critical illness.

The living benefits option may reduce the death benefit that the beneficiaries will receive, and the policyholder may have to pay taxes or fees on the amount they receive.

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Term life insurance is a popular and affordable way to protect the financial future of loved ones in case of an untimely death.

However, term life insurance also has a limited duration and may expire or mature before the policyholder dies.

Therefore, it is important for the policyholder to understand what happens when a term life insurance policy matures, and what options they have to continue or change their life insurance coverage.

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