Securing your family’s financial stability after you’re gone seems like a good idea, and this is why people opt for term life insurance.
Term life insurance is a life insurance type where a policyholder is insured for a number of years unlike whole life insurance which guarantees lifetime protection.Term life insurance only gives a guaranteed death benefit after the policyholder dies.
This is just an overview, let’s dive into details.
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How does term life insurance work?
Now that we have a fair idea of what term life insurance is, let’s see how it works.
A term life insurance allows protection for a certain term, or time limit. It is usually somewhere between 10-30 years, during that time policyholders are required to pay premiums monthly or annually for however long the term is. Once the policyholder dies, the death benefit is given over to beneficiaries.
Term life insurance premiums are relatively low because it provides protection for only a certain period, and because it ONLY has a death benefit.
Whole Life Insurance Policy
On the contrary, whole life insurance policies provide protection for the policyholders whole life, along with an accumulated cash value component that the insured can borrow or withdraw for use during their life too.
Whole life insurance premiums are very high because along with the death benefit, they also provide an accumulated cash value and whole life protection unlike term life insurance.
Even though the accumulated cash value and whole life protection may seem like the best option to go for whole life insurance, what most people don’t realize is that they will also have to pay higher premiums for their whole life.
If you’re only looking to create a monetary legacy for your spouse and children, and only worry about the time after your death, term life insurance is your best bet. With coverage for a certain time period and a guaranteed death benefit, you are only liable to pay low premiums!
But, can you outlive your life insurance policy?
What happens if you outlive your Life Insurance?
So imagine you opted for a term life insurance of 20 years with the intent of the policy giving a death payout to your beneficiaries when you die. You are prompt in paying premiums and your policy is intact.
But what if you DON’T die while the policy is in force? What if you outlive your term life policy? Now that you’re nearing the end of your policy, what should you do?
In such a case, there are a few options that you might be eligible for:
One option is renewing your term life insurance policy. If you’ve already given a medical exam, chances are that you won’t be required to give an exam again. So this option works best if your health has deteriorated in any way- this way the insurance company will allow you to renew your policy without having to give an exam.
However, the renewal option is only available until policyholders turn 80. If at the time of renewal you are 80 or above, your policy will expire and you will NOT be allowed to renew it. Chances are that the renewal rate will be higher, meaning now you will have to pay higher premiums.
Ironically, the coverage amount is unchangeable. Maybe you want more coverage or maybe you want less coverage depending upon your financial situation now, in both ways the coverage will remain the same BUT with higher premiums now (based on the assumption that your health has decreased over time).
Convert to whole life insurance:
If you’re not willing to commit to another term for the life insurance policy, you have the option to convert it to whole life insurance. This way you will get permanent coverage and a portion of your premiums will also be added to the cash value account.
Again, there is no medical exam needed if you’re looking to convert only. But, of course you will have to pay a higher amount of premiums because a whole life insurance does require that.
But, you can’t convert AFTER your policy has expired, you have to take action 30 days before your policy expires. So this time constraint is very much there and you have to make sure you abide by it.
Buying a new term life policy:
If you really want to buy the same policy again, you will pay the same amount of premiums. In this option, you have additional options that you might want to consider when it comes to term life insurance:
- If you’re going for a decreasing term life insurance, your premiums stay the same but the death benefit decreases over time.
- If you’re going for an annually renewable term life, the policy will have to be renewed after each year- because this is the shortest policy and suitable for people with short-term needs, this is the least expensive type of policy. However, your premiums may increase after each renewal.
- There is also the option of increasing term life, which increases your premium amount each year also increasing the death benefit. This option is best to cater to rising expenses or debts that you would want your family to pay off after you die.
Now that you’re sure you want to get a new policy, you have the option to shop around and look for a better insurance option than your existing insurance company. You might get a better death benefit for lower premiums, however, a new insurance company may require you to give a medical exam. So depending on your age and health, you might not get the best deal.
In such cases, the best option for you is to opt for the above listed choices. Of course, it depends on how your needs have changed, but if they’re pretty much the same, maybe converting to whole life or renewing the policy is your best bet.
Cancelling term life insurance
The end of life insurance can be pressurizing for some. Especially if you’re looking for renewing the policy; you will have to take into consideration the time constraints, additional charges etc.
But, if your term life insurance needs have changed and you no longer require protection, you have the option of surrendering the policy altogether. Usually there is a small surrender fee if you wish to do so.
Cancellation of the policy can be done in two ways: you either stop paying premiums which will ensure that you’re no longer protected, or you can officially request your insurance company to cancel the policy. Both of these options are doable, just make sure you act quick.
There is obviously a chance that people outlive their term life insurance. Imagine you had been paying premiums for 20 or 30 years and you were to outlive that term, what happens to the premiums? Do you get a refund?
The answer is NO. You DON’T get a refund on all the premiums you have already paid.
What you will be allowed to do is choose any of the options discussed above according to your needs. If you still wish to be protected under insurance, you can either renew, convert or buy a new policy. And if you no longer wish to be covered, you can surrender it too.
All of your decisions mainly reflect if your financial needs have changed over the years. So make sure you properly evaluate those to be able to make an informed decision.