What happens when term life insurance expires?
You've outlived your term life insurance policy. What happens to your policy at its expiration and what options do you have as a consumer?
Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York
Video Transcript: What to do when your term is expiring
Video Duration: 2 minutes 15 seconds
Transcript Date: June 30, 2023
Introduction: Elapsed time 0 minutes 0 seconds [0:00]
Description of Visual Information: [Information Courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York] End of description
You made the right choice when you bought a term life insurance policy. But now that the coverage is changing, you're probably wondering what to do next.
If you're interested in continuing your coverage, you've got a few options based on the type of policy you have.
Annual renewable versus level term: Elapsed time 0 minutes 18 seconds [0:18]
There are two basic types of term insurance policies: annual renewable and level term.
Annual renewable term policies last to a certain age. You renew your coverage each year without going through a medical exam. You pay less at first, but your premiums go up every year as you age.
A level term insurance policy usually covers a period of 10 to 30 years. With this policy, your premiums may be higher, but you'll pay a fixed amount during the stated period. After that, your premiums will no longer be fixed and your coverage could change.
Both types of policies typically offer fixed death benefits. So, what should you do if your policy is changing? Depending on your needs, you have several options.
Extend your coverage: Elapsed time 0 minutes 58 seconds [0:58]
Option 1 is to extend your coverage.
This option is only available if you currently have level term coverage.
It may be the right choice for you if you're considered uninsurable due to health issues or lifestyle choices. You may even be able to lower your premium by decreasing your death benefit amount.
Convert your policy: Elapsed time 1 minutes 15 seconds [1:15]
The second option is to convert your policy.
Your current policy likely offers conversion privilege. This means you can convert your term coverage into a permanent life insurance policy without the hassle of going through a medical exam. Also, if your insurance needs have changed or your budget has increased, now could be the time to invest in permanent, long-term coverage.
Shop for a new policy: Elapsed time 1 minutes 37 seconds [1:37]
Finally, you can shop for a new policy.
If your annual renewable policy is close to expiring, shopping for new coverage may be your only choice. And depending on age or health, your best bet may be permanent insurance or a guaranteed issue policy.
In case your level term policy has reached its guaranteed period end date and you're still in good health, it might make sense to apply for a brand-new life insurance policy.
Review your insurance needs: Elapsed time 2 minutes 5 seconds [2:05]
It's important to review your insurance needs and start planning early.
Call us today so we can review your existing policy and help you make the right decision.
Description of visual information: [Visit usaa.com/life to learn more or call 800-531-LIFE(5433).
The information contained is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional advice before acting on any information you may have found in this article. This article in no way attempts to provide financial advice that refers to personal circumstances.
Life insurance and annuities provided by USAA Life Insurance Company, San Antonio, TX and in New York by USAA Life Insurance Company of New York, Highland Falls, NY. All insurance products are subject to state availability, issue limitations, and contractual terms and conditions. Each company has sole financial responsibility for its own products.]
End: Elapsed time 2 minutes 15 seconds [2:15]
Outliving your term life insurance policy sounds like a good thing — after all, you're still alive. But you might be wondering: What do I do now? What exactly is expiring?
Because you see, the word “expire” is sometimes misunderstood when it comes term life insurance. Usually expiration means that the policy has reached its end date and you'll no longer be covered. But sometimes expiration just means the level premium period is going to end, leaving the policy owner with three common options:
- Continue your current policy based on your carrier's stipulations and contract options.
- Potentially convert your term policy to a permanent policy.
- Shop for a new life insurance policy.
Let's review how the two main types of term insurance work to better understand how these options apply.
Understanding term life insurance
A term life insurance policy provides coverage for a set number of years or to a certain age limit. The premiums are set from a variety of factors, including the policy's value and your age, gender and health.
If you die while your term life policy is active, your beneficiaries will receive a payout from the insurance company. If you die after your term policy has expired, there's no payout for your beneficiaries.
There are two basic types of term life insurance:
Annual renewable term insurance
These policies last until a certain age and have no specific level premium range. Instead, they renew every year — without a medical screening or application, usually at a fixed death benefit amount. But keep in mind that your policy premiums likely will increase from year to year as you age, which may eventually make the policy too expensive.
Level term insurance
Usually covering a guaranteed period of 10 to 30 years, these policies offer fixed death benefits and fixed premiums. The premiums may start out higher than a comparable annual renewable policy. But over the course of the level period, you tend to save money with level premiums. When this premium guaranteed period ends a few things can happen.
- The policy becomes a form of renewable coverage where the death benefit can stay the same, but the premiums increase every year.
- The policy becomes a form of renewable coverage where you can choose a lower death benefit than the original policy. This effectively lowers the cost, with premiums that still increase every year.
- The policy becomes a form of decreasing term protection where the premium stays level, without a guarantee, and the death benefit decreases each year.
- The policy becomes a combination of types, experiencing reoccurring premium increases and yearly death benefit decreases.
- The policy expires.
These changes after the guaranteed period are just some common examples of what can happen depending on your life insurance carrier and contract.
What are my options for different scenarios?
Depending on your personal needs, you have several choices if you've aged out of your policy or the level guaranteed period is going away.
Extend your current term life coverage.
You've officially outlived your term policy when you reach the age that your life insurance policy expires. For most policies, this age is in the 80s or 90s, but some policies without a medical exam expire at a much younger age.
If your policy is an annual renewable term, keeping the term policy past the age limit isn't usually an option. But if you have a level term policy where you've outlived the level period, your policy may allow you to extend coverage.
If this is a choice, some policies automatically switch into an annual renewable policy. This means your coverage will now expire at a certain age, your premiums are no longer guaranteed and your coverage amount may change. As you can imagine, this can cause an unpleasant surprise after 20 or 30 years of steady, consistent premiums and protection.
On the one hand, the extended coverage rates could become unaffordable very quickly. And if not, they can be met with coverage amounts that decrease each year.
You may still want to consider extending your coverage depending on the policy specifics, your personal needs and your ability to qualify for new coverage. For example, maybe you still need life insurance but know that you're uninsurable.
Extending your coverage may let you keep your policy without requiring underwriting or a health screening. Some policies also allow you to decrease your death benefit amount, which can help make the extended coverage more affordable.
It's important to plan ahead and review the details of your existing policy with your life insurance company. They'll be able to give you specifics on the maximum premium, anticipated cost and benefit changes when keeping the policy.
Convert your term life policy into a permanent life insurance policy.
Whether you have a level term policy or a yearly renewable policy, you likely have what's known as a conversion privilege. During this period, you're allowed to convert part or all of your term policy into a permanent life insurance policy.
This could be beneficial for many reasons. For one, converting doesn't require a new medical exam or health screening. This is beneficial if your health situation has changed since your original life insurance approval. The new policy may also include a cash value benefit.
Conversion is helpful if you've experienced a change in your life insurance needs. Maybe you have fewer financial obligations, or your budget has increased. This choice gives you a permanent, long-term protection solution.
Keep in mind that the premiums are likely to increase. They may not be affordable compared to the death benefit that you need.
Shop for a new policy.
If you've reached the end of your annual renewable policy, shopping for new coverage may be your only choice. A new policy often requires underwriting and may be more expensive than your original premium based on age alone.
But if you're still in good health, it might make sense to apply for a brand-new life insurance policy. This is also something to consider if your needs have changed, and you want to increase your coverage to match.
You may find that you can lock in another fair term rate for a set period. Don't just assume that a new policy will be unaffordable because you're older. But depending on age or health, you may want to consider permanent insurance or a guaranteed issue policy.
What to do when your term life insurance is expiring: the bottom line
Buying term life insurance is an effective way to make sure your loved ones are financially secure after you're gone. And because the premium is based on your age, health and life expectancy, you might be able to lock in a fair rate for the life of the policy.
You'll want to keep in mind your policy's end date to avoid any gaps in coverage. You also want to have plenty of time to weigh the pros and cons of all your life insurance options. With a little planning, you can avoid any unexpected premium increases if your policy automatically converts to a yearly renewable policy.