What Happens When Term Life Insurance Expires?

Interactive Transcript

spk_0 Welcome back. It's Finance Friday, another special edition of Money Girl. This is the show

spk_0 where I answer your burning money questions. We love getting your questions, whether you're

spk_0 calling them in or saying them by email, so please keep them coming. Today's topic comes from a

spk_0 question from Jennifer who says,

spk_0 My husband and I both purchased 20-year term life insurance policies when we were in our 20s.

spk_0 Now that we're in our 40s, the policies will expire soon. Can you explain our options once we

spk_0 no longer have those policies? Jennifer, I really appreciate your question. My husband and I

spk_0 recently faced a similar situation with our life policies also expiring, so I can definitely help

spk_0 you consider all your options. This podcast will review tips on determining if you need life

spk_0 insurance and if so how to maintain or replace your existing coverage. Welcome back everyone.

spk_0 It's episode 963 of Money Girl. I really appreciate you downloading the show and spending a little

spk_0 bit of your precious time with me. I'm Laura Adams, an award-winning author, on-camera spokesperson,

spk_0 money speaker, and founder of The Money Stack. That's my sub-stack newsletter. You can learn more,

spk_0 ask your money question and sign up for the money stack when you visit lora-d-atoms.com.

spk_0 And you can get the newsletter for free or become a paid member with access to my live educational

spk_0 and Q&A events. Additionally, you can ask a money question by leaving a voicemail by calling 302-364-0303-1.

spk_0 I look forward to hearing from you and hopefully featuring your question on the show.

spk_0 So I'm sure most of you know what life insurance is, but let's just talk about the two main

spk_0 types of coverage pretty quickly. We have permanent life insurance and term life insurance.

spk_0 Permanent insurance is called permanent because it covers you for your entire life and it typically

spk_0 builds a cash value that you can have. Term life insurance is different and that's going to be

spk_0 the focus of this podcast. Term coverage is just for a set period or term like 10, 15, or 20 years

spk_0 as in the case of Jennifer. If you die during the term while your policy is active, your beneficiary

spk_0 or beneficiaries receive a pre-determined death benefit. It could be you know just about any

spk_0 amount that you specify something like 100,000, 500,000, a million or more. The higher your death

spk_0 benefit and the longer your term, the higher your premium will be for a term life policy.

spk_0 However, term coverage is more affordable than permanent life insurance. Other factors that

spk_0 determine your life insurance premiums include your age, gender, health, medical history,

spk_0 smoking status, and driving history. So let's say you're like Jennifer and you've got a term

spk_0 life policy, what is going to happen when it expires at the end of the term? Well once your term life

spk_0 expires and you stop paying premiums, that's at the point where your beneficiaries are no longer

spk_0 eligible for the policy benefit if you die. Plus you do not get your premiums back. However,

spk_0 you're still alive so congratulations. Now you're not entitled to receive any money back for

spk_0 unused life insurance unless you purchase a specific type of coverage called a return of premium or

spk_0 R.O.P. policy. With an R.O.P. life policy, you do pay higher premiums for coverage, but you get

spk_0 them refunded in full if you outlive the policy term. In my experience, at least a year before your

spk_0 term life insurance expires, you're insurer typically starts reminding you about the upcoming

spk_0 expiration deadline and it is a good time to consider whether you need more coverage or you just

spk_0 want to let your current coverage expire. With term insurance, you typically purchase it to have

spk_0 protection during a specific time frame like until a child graduates from college or they reach

spk_0 adulthood. If you achieve that goal, then saying goodbye to a term life policy may be exactly what

spk_0 you plan that could be the right thing to do. However, if you have people in your life who are

spk_0 financially dependent on you such as a partner, spouse, child or parent, you likely still need

spk_0 life insurance. You can also utilize life insurance in your estate planning, such as providing

spk_0 errors with the benefit to cover your final expenses. Life insurance can also be an excellent way to

spk_0 leave a legacy to your family or to a special organization. Regardless of your reason for seeking

spk_0 additional life coverage, we'll review several options to consider. Be aware that you don't have

spk_0 to wait until a term life policy expires to compare quotes or apply for additional coverage.

spk_0 You can always have multiple life insurance policies that all add up to the total amount of coverage

spk_0 that's right for you. So first we'll talk about converting your term life insurance.

spk_0 Some insurers may offer the option to convert a term life policy to a permanent policy. As I

spk_0 mentioned, it provides lifelong coverage and builds a cash value. When converting a policy

spk_0 you typically don't have to undergo a medical exam. However, permanent policies are more expensive

spk_0 than term because they give you more benefits. A good reason you might consider converting a term

spk_0 policy to a permanent one is if your health has declined significantly since you originally

spk_0 purchased the policy. That would allow you to get covered at a rate based on your better health,

spk_0 not your current health, and that would save money. If you have dependents or outstanding financial

spk_0 obligations when your term life policy ends, converting it to a permanent policy ensures your loved

spk_0 ones are protected no matter when you die. That could be especially important if you have a special

spk_0 needs child or even an aging parent who depends on you and would be, you know, hurt financially

spk_0 after your death. Additionally, you may find the benefits of a permanent policy such as building

spk_0 cash value attractive for retirement planning or other financial objectives. But if you don't

spk_0 need lifelong coverage or want to pay much higher premiums for permanent life insurance,

spk_0 a term policy may be best. But many insurers allow you to convert just a portion of your term

spk_0 policy into permanent coverage. So if you do want permanent coverage just getting a lower amount

spk_0 could help reduce your premiums and, you know, allow you to keep some amount of lifelong coverage.

spk_0 Permanent life insurance can be complex with numerous options and surrender fees if you cancel

spk_0 it prematurely. So be sure to seek guidance from a financial professional who can help you weigh

spk_0 the pros and cons before buying permanent life insurance. So converting a term policy to permanent

spk_0 is your first option. A second option that ensures often allow is for you to extend your current

spk_0 term life policy. However, your premium will be higher because you're older. As you can imagine

spk_0 after paying a consistently low premium for 20 years, seeing it increase substantially can cause

spk_0 an unpleasant surprise. For instance, let's say your premium for a 20 year, $500,000

spk_0 term life policy was $100 per month starting in your 30s. It could be 300 or 400 a month if you

spk_0 choose to extend a policy starting in your 50s. However, the upside of extending and existing policy

spk_0 is that you won't have to go through underwriting or a medical exam. That could be critical if you

spk_0 need life insurance, but may not be insurable due to a significant decline in your health. Plus,

spk_0 you may be able to reduce the death benefit to make an extended policy more affordable.

spk_0 All right, a third option is to shop for a brand new term life policy when your existing

spk_0 coverage is set to expire or has already expired. For instance, if your 20 year, $1 million

spk_0 policy expires, you may want to purchase coverage for 15 years with a $500,000 benefit. My point is

spk_0 that you don't have to get the exact same coverage. You can get something completely different than

spk_0 you previously had. You have the flexibility to choose the provider, the amount, and the term

spk_0 that suits your needs. And it's really easy to shop online. You can use a site like policy genius

spk_0 where you can compare quotes and speak with a licensed insurance professional for guidance.

spk_0 However, obtaining new life insurance typically requires a medical exam. While there are no exam

spk_0 life insurance policies out there, they usually cost more than a standard policy. Additionally,

spk_0 as I mentioned, you're going to pay higher premiums when you're older and applying for new life

spk_0 insurance. You can always compare the cost of renewing a current life policy and getting a new one

spk_0 to see which option is better for you. But in my experience, getting a new term policy is more

spk_0 affordable than opting for an automatic renewal. You know, and typically that is because you're going

spk_0 to go through underwriting again, you're going to get a medical exam. But it really depends on your

spk_0 desired benefit, your age, and your health situation. If you're still in relatively good health,

spk_0 applying for a brand new life policy may give you more for your money. The bottom line is that if

spk_0 your term life insurance is expiring, don't assume that a new policy will be unaffordable just because

spk_0 you're older. Yes, it is going to be higher, but maybe it's not going to be as high as you

spk_0 anticipate. And it still may be worthwhile if you have loved ones who would be financially hurt

spk_0 after you're gone. If you're a young policyholder or let's say you plan to buy life insurance while

spk_0 you're in good health, remember that you can save money by locking in a fair rate sooner rather

spk_0 than later. You know, you never know what's going to happen with your health. Just remember your

spk_0 policy's expiration date so you have plenty of time to weigh all your insurance options. With a bit

spk_0 of planning, you can avoid significant life insurance rate hikes. Jennifer, only you and all the

spk_0 listeners can decide if you want or need to provide life insurance for dependents, business partners,

spk_0 charitable organizations, schools, or for your final expenses after you're gone. However,

spk_0 as I mentioned, if you no longer need life insurance when a policy expires, there's no need to purchase

spk_0 or extend coverage. Jennifer, thanks again for the question. I hope this has been helpful to

spk_0 really think about whether you need life insurance and some options that you might want to consider

spk_0 as your policies do approach that expiration date. If you're enjoying Money Girl, please take a

spk_0 moment to let us know you're getting value from our weekly episodes by rating and reviewing them

spk_0 in your podcast app. That's all for now. I'll talk to you soon. Until then, here's to living a richer

spk_0 life. Money Girl is a quick and dirty tips podcast and I want to thank our amazing team that works on

spk_0 the show. Steve Brickieberg is our audio engineer. Holly Hutchins is our director of podcast.

spk_0 Morgan Christensen is our advertising operation specialist. Rebecca Sebastian is our marketing

spk_0 of publicity manager and Nathaniel Hoops is our marketing contractor.

What Happens When Term Life Insurance Expires?

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