Term life insurance is a set duration life insurance product designed for those who have specific needs. Because this policy has a defined “term” or number of years it is good for and does not have an investment or savings aspect, it is primarily used to cover the financial needs of loved ones left behind after an unexpected death.
The Benefits of a Term Life Policy
There are several benefits to choosing a term life policy:
There are several types of term policies to choose from. A level term will offer the same coverage throughout the entire term, at the same annual premium rate. A decreasing term policy will allow you to gradually decrease your coverage amount, though the amount you pay monthly will be predetermined at the start of the policy and remain the same throughout. This is great for those who are using term life policies to protect a mortgage. Convertible term policies allow younger individuals to purchase term insurance but leave them the option to convert to a permanent life insurance policy later, without having to go through any additional medical exams.
So What Happens When the Policy Term Ends?
The short answer is nothing. If you die during the term of your policy, your beneficiary gets the coverage amount you purchased. If you are living when the term ends, your insurance company keeps your premiums and you move on with your life.
There are a couple of exceptions. Some life insurance companies issue renewable term policies, giving you the option to renew your policy at set intervals without undergoing any additional underwriting procedures (medical exams, etc). The premium for this type of policy is usually adjusted based on your age.
The other exception is the ROP term life policy, or return of premium. You’ll likely pay a lot more for this coverage but if you don’t die you get your premiums back, minus some fees and administrative charges. The catch is that you absolutely must keep this type of policy until the end of the term you purchased. If you let it lapse early, you forfeit the right to have your premiums returned to you.
When your term life policy does expire, you’ll want to sit down with your insurance agent and discuss your future needs. Do you need another term policy? Do you need to move towards a permanent life insurance policy? Do you need a combination of the two? Your term policy may have ended but your life has not. Make sure your assets and your family are protected.