After years of paying premiums, your term life insurance policy may be coming to an end. You’re wondering what happens when term life insurance expires — and if all the money you’ve paid in is about to vanish.
The good news is you may not have to lose everything you’ve put into it. This guide breaks down what happens at the end of term life insurance and why a life settlement may be your best option.
HOW TERM LIFE INSURANCE WORKS
Term life insurance provides life insurance for a specific period, ranging from 10 to 30 years. If the policyholder passes away during the term, their beneficiaries receive a death benefit.
The biggest difference between term life vs. whole life settlement is that term life doesn’t have any built-in cash value. People often buy these policies to protect their families while their kids are young or rely heavily on their income.
WHAT HAPPENS WHEN A TERM LIFE INSURANCE POLICY MATURES?
A term life insurance policy only covers a set period. When the term is over, the policy ends, with no death benefit payable to the beneficiaries.
WHAT HAPPENS TO THE MONEY WHEN TERM LIFE INSURANCE EXPIRES?
Term life insurance premiums only cover the cost of coverage during the term. They’re not investments, so they don’t build up cash value. That means if you don’t use your insurance, coverage simply stops at the end of the term. There’s no payout, and you don’t get your money back.
There is one exception, though. Some policies include a return of premium rider, which pays back some or all of your premiums. However, these policies typically cost more than standard term life insurance.
Don’t worry too much about whether your money is gone, though. It’s better to ask if your policy still has value before it matures.
WHAT TO DO WHEN YOUR TERM LIFE INSURANCE IS EXPIRING
Don’t wait until your term life insurance policy expires to take action. It’s best to decide what to do a few months before your coverage ends.
Term policy expiration options vary in cost, complexity, and long-term value. Here’s what you can do and the trade-offs for each path.
1. BUY A NEW LIFE INSURANCE POLICY
If you are still in good health and want to keep some protection, you could apply for a new policy. You’ll have fresh coverage that fits your new stage of life, and you can choose from new term or permanent insurance.
This option may work if you’re relatively healthy and in your 50s or younger. However, premiums often cost more if you apply for coverage in your 60s or 70s. Health conditions could also lead to significantly higher rates or outright denial.
2. EXTEND YOUR CURRENT POLICY (ANNUAL RENEWABLE TERM)
If you have an annual renewable term policy, you can renew coverage one year at a time without a new medical exam. There’s one caveat: the cost increases each year. Within a few years, these compounding increases can quickly become unaffordable.
This option can buy time if you want short-term coverage while you look for better options. For example, you might extend a 20-year term life insurance for one year while you are exploring a life settlement.
Not all policies include this option, so ask your insurer directly.
3. CONVERT YOUR TERM POLICY TO PERMANENT COVERAGE
Many policies let you convert term to permanent life insurance without a new medical exam. This new policy offers lifelong coverage and has no expiration date.
You can typically choose between two options: a whole life insurance policy with fixed premiums, or a universal policy with flexible premiums. You may prefer universal life insurance if your future income may fluctuate.
Converting your term life policy is often the first step to qualifying for a life settlement. That can give you much more value than simply keeping or lapsing your term insurance. The catch is that you need to convert the policy before the rider expires — which might happen years before the policy itself. Early action is key.
4. LET THE POLICY EXPIRE AND DO NOTHING
Unfortunately, this is the default for most people. Many do not know their options or assume they do not qualify for alternatives, and they let the policy expire. In that case, your coverage ends, and you walk away with nothing. Plus, you may lose the chance at a life settlement for term life insurance. Doing nothing might seem the easiest option, but it is often the most costly in the long run.
LIFE SETTLEMENTS FOR TERM LIFE INSURANCE: A BETTER OPTION
You don’t throw away your car when the lease ends; you trade it in instead. You may not realize it, but a life settlement lets you treat term life insurance the same way. This option allows an eligible policyholder to sell a life insurance policy instead of letting it lapse.
Here’s how the life settlement process works: It usually starts with term life insurance conversion. You typically can’t sell an expiring term life insurance policy in its original form, so you’ll need to turn it into a permanent policy. That allows a third-party buyer to take over your premium payments.
The deal benefits both sides. As the seller, you walk away with a lump sum cash payment that you can spend on anything you choose, like a vacation or healthcare. This is often more than the surrender value of the policy. You also make more than if you let the policy lapse, which returns nothing. You also stop paying for premiums.
Meanwhile, the buyer assumes the payments and gets the death benefit when the original policyholder passes away.
LIFE SETTLEMENT ELIGIBILITY FOR TERM POLICIES
Not every term policy qualifies for a life settlement, but many do, especially if they meet a few critical life settlement eligibility requirements:
- Age and health of the insured: Life settlements are generally for people over 65 with some health issues since the policy was issued.
- Policy size: A life settlement typically requires $100,000 or more in coverage.
- Active conversion rider: The rider must still be active to convert the policy to permanent insurance.
- Annual renewable term policy: These policies can sometimes be sold even without a conversion rider.
Tip: Not sure if you’re eligible for a life settlement? It’s worth checking before it’s too late. One phone call to a knowledgeable insurance professional could help you sell your expiring term life policy for more money than you thought possible.
TALK TO THE EXPERTS BEFORE YOUR TERM POLICY EXPIRES
Letting your term life insurance policy expire without considering your options could mean leaving money behind. But if you act while your policy is active and your conversion rider is still in force, you could turn an expiring term life insurance policy into a valuable asset.
At Life Settlement Advisors, we can help you determine whether your policy qualifies. Let us walk you through your options and help you make the most of your term life policy.
Contact LSA today for a free, no-strings-attached consultation.
Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
FAQs
Does term life insurance expire?
Yes, a term life policy expires at the end of the contract period. That means you stop receiving coverage, and your premium payments end. Reach out to your insurer or check your policy if you don’t know your expiration date.
What to do when your term life insurance is expiring?
There are several term life insurance expiration options. The simplest is doing nothing and letting the policy lapse, though you’ll lose everything you’ve paid in. Other options include extending the policy while you search for long-term alternatives, converting it to whole life insurance, or getting a life settlement for term life insurance.
When does term life insurance expire?
There’s no set age when term life insurance expires, because it depends on the length of the contract. This is usually between 10 and 30 years. For example, a 30-year-old mother might purchase a 25-year contract to cover her family until her children finish college.
Do you get money back after term life insurance expires?
Some term life insurance policies include a return of premium rider. That means you’ll get a portion or all of the money you spent on the policy back at the end if you haven’t used your coverage. Without this policy, you won’t receive any money back if you let the policy expire.
Can I get a life settlement for term insurance?
Yes, you can get a life settlement for term insurance. Typically, this involves converting your term insurance into a permanent policy. Then, you can sell this new policy to a third-party buyer for a lump sum. The buyer also takes over future premium payments, so you keep more money in your pocket.
