What happens when your term life insurance expires?
What to do when your life insurance policy is about to expire
If you own a term life insurance policy, you’re only covered for that period of time. Whether you set the term for, 5, 10, 20, 30 years, there may be a time that you outlive your policy. So, what happens when your term life insurance expires? You’ve managed to survive. Congratulations! But what do you do now?
There was a reason you opted for term life initially.
It’s important to remember that there was probably a reason you chose the expiry date on your life insurance. Otherwise, you may have opted for whole life insurance instead. Is it because you didn’t think you’d need cover for this long? Or you’ve got life insurance through the business and didn’t anticipate on staying this long? Either way, there are options you have when your life policy expires. You can either leave the policy and use what assets you have accumulated as your financial security or read on and find out what options you have to get the level of cover you need.
In fact, when your term life insurance expires, it doesn’t really end.
Term life insurance works by agreeing an initial term period where your premiums are set at certain amounts. Whether you’ve got a level term, decreasing term or increasing term. However, many years you’ve agreed to, at the end of your term you can still actually carry your policy on.
The problem with this is that after the term has ended, the prices go up. A lot.
When the term ends, so does the agreement of the price of your premiums. If you carry a policy on after this point, insurance companies have a tendency to hike the prices up to extortion. You’ll still be eligible for the payout at the end, you’ll just be paying a lot more for it.
Do you still need your life insurance policy?
After a certain amount of time, it may be that you no longer need a life insurance policy. As you get older, as a general rule so do your assets. Your mortgage becomes lower or gets paid off, children grow up and income tends to rise. If you’ve got substantial savings, a decent pension and other assets, then you may not need life insurance. If your life insurance expires, you may still need life insurance coverage if you:
- Still have dependants living with you
- Are still paying your mortgage
- Have other debts or loans outstanding
- Have a partner that depends on your income
- Would like to leave some money for your loved ones after you pass away.
What are the options?
When your life insurance runs out, there are still options for you to get cover. Whether you’re still paying off the mortgage, have people that depend on you or just want to leave a legacy behind for your loved ones, life insurance doesn’t have to end with your term. If your policy has ended you can;
Extend the policy
You can actually keep your current policy and continue to pay the premiums. The term of agreed premiums has ended, but that doesn’t mean that you can’t carry on getting cover.
Convert the policy
If you would like to keep the policy and are happy with your provider, you may have the option to convert your policy. When your policy expires, you can convert it to a whole life policy instead.
Renew the policy
Some insurance providers will let you keep your life insurance by renewing the policy. You will have to check if this option is available to you and how much it will be.
Replace the policy
Whilst there are options to continue with your current provider and policy, it may be easier to replace the policy. By comparing different policies, you may be able to find a better deal.
Extending your term life insurance policy
Most term life insurance policies don’t actually expire. Buried within the terms and conditions, your term life insurance normally covers you till the age of 95.
When your term comes to an end, you may have the option of extending your insurance policy. You can keep your existing policy and the amount of cover that was agreed, but the premiums are likely to change.
And by change, I mean increase.
Your premiums are likely to increase each year after as well. So, extending your term life policy can be rather costly. For most people, it’s not really a viable option and there are much cheaper options to go by. Having said that, extending your term life insurance policy can be good if:
You’re over 70
At this age, you’re less likely to be able to get a decent life insurance offer, if at all. Life insurance gets more expensive the older you get, so if your term life insurance expires when you’re over 70 it is likely that replacing your policy will be astronomical. Keeping your existing policy might be a better approach.
You need cover for a short period
If you are just a couple of years away from retirement, paying off the mortgage or your children leaving home, then extending your term life insurance policy might be a viable option. Most insurance plans have a minimum term of 5 years, so you’ll be better off keeping your policy.
You’ve got a terminal illness
If you’ve been diagnosed with a terminal illness and don’t have much longer to live. Then you’re best off keeping your insurance policy so that you can keep the cover that you’ve been paying for all these years. It ensures that any expenses can be paid off, there are finances available for funeral costs and you can leave something behind for your loved ones.
Converting your term life policy
If you check the terms of your policy, you may be eligible to convert your policy. Before your term life insurance expires, you may be able to speak to your insurance provider and convert your term life insurance to a whole life policy.
A whole life insurance policy tends to be more expensive, but it lasts until you die. Therefore, you’re guaranteed a financial payout in the event of your death. Normally, all you need to do is start paying the premiums.
Your premiums will be based on the age at which you are converting your policy.
But you won’t normally need to go through the process of underwriting again, which means – no health check.
Again, your premiums are likely to increase but it can be an option worth looking at. A whole life policy is normally written into a trust, which means it’s exempt from inheritance tax and doesn’t go towards your annual pension allowance. Any assets that you have in the event of your death will fall into your estate. If these assets are worth over £325,000 then inheritance tax is charged at 40%. Therefore, a whole life policy can be a good way to offset these costs.
To read more about whole life insurance and if it’s right for you, check out our blog, Whole Life Insurance – Everything you need to know.
Converting your expired term life policy into a whole life policy can be good, therefore, if:
- You want a guaranteed payout in the event of your death
- You don’t want to go through the underwriting process again
- Currently, or in the past, you have suffered from health conditions that may affect the cost of your policy
- You have substantial assets and/or a generous pension pot
- You want to avoid inheritance tax
Renewing your expiring life insurance policy
Although specifically opting for a renewable life insurance policy can be done, in essence, almost all life insurance policies are actually renewable. Have a look at your current insurance terms to see if you can renew your policy and what your options are. What it essentially means is that you can start a new term policy all over again.
If you’re healthy, then it’s the least expensive option of getting a new life insurance policy.
Renewing your term life insurance policy means starting a new term. Therefore, underwriters normally require a medical check to check that you’re still in good health. If you’re healthy, then you can easily get another policy and it’s often cheaper than most of your other options.
However, if your health has deteriorated, the cost of your premiums is likely to escalate, and you’ll lose out on any potential savings you could get with this policy. If this is the case, whole life insurance might be a more viable option for you, as it can get pretty pricey. Be aware of costs and compare providers to make sure you get a good deal.
Renewing your life insurance after the term has ended is beneficial if:
- You’re in relatively good health still
- You don’t mind going through another medical examination and underwriting
- You are under 60 or so
Replace your policy with a new one
The best way to find out which option for you is to compare policies and check with a financial advisor what your options are. The least expensive option for you may actually be to take out a new policy. Bear in mind with any new policy, you will need to undergo medical checks. Prices will also increase the older you are. But if you’re relatively healthy it may be a cheaper option.
Even if you’re not healthy, it’s always best to compare your options and other providers.
Replacing your old policy with a brand new one is probably worth it if:
- You shop around and compare prices
- You’re relatively healthy and young still
- All the other options are turning out to be quite expensive
- You don’t mind going through the process again to get a better deal
What else can you do?
If your term life insurance expires, it’s always best to check your policies terms and conditions to find out what your options are. There may be other options you can take that are written in the small print. If you have health issues, your best options are to convert the policy to a whole life plan instead. But for any other situations, it can normally be best to compare all your options to find the best option.
The cheapest option isn’t always the best one.
When your term life insurance expires, you want to make sure that you’re getting the right level of cover for your needs moving forward. After all, that’s what you took it out for. When comparing life insurance policies and providers, make sure you’re getting the best option that suits your requirements. Small businesses and couples may want to look at small business life insurance or a joint policy. It’s also important that you get the right length of the policy to suit your needs. For example, you may want cover during a mortgage repayment but will no longer need it after that. A level term policy may work out cheper too.
We can help compare providers and your life insurance options for you, so you don’t have to do it all over again. We provide free quotes and advice for our customers, so you won’t need to pay anything other than your premiums when we find you the perfect policy.
When your term life insurance expires or is coming close to that date, don’t worry! Keep these options in mind as your insurance plan draws to an end and consult with a life insurance advisor to make a more informed choice without any of the hassle.