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What will you do when your term life insurance ends—renew, convert, or let it lapse? If you’re approaching the end of your policy, it’s the perfect time to ensure your coverage aligns with your current life stage and financial goals. Whether it’s providing financial security for your family, paying off debts, or planning for the future, understanding your options before your term expires is crucial.
Your needs today may look very different from when you first bought your policy. A lot can change in 10, 20, or 30 years—children grow up, mortgages shrink, and retirement looms. The good news? With the right guidance, you can make a confident decision about your next steps.
Don’t let the end of your policy catch you off guard. Read on to discover what happens when your term life insurance expires and how to take advantage of this critical transition point.
- Key takeaways:
- Term insurance renewal premiums are much higher than the original rates. Renewal is best for those who can’t qualify for new coverage due to health or lifestyle changes.
- If you’re still in good health, purchasing a new term policy has lower rates than renewing.
- If your financial obligations have diminished, you can reduce the death benefit or terminate the policy entirely.
- Start reviewing your options at least six months before your term ends to ensure any new policy is in place before the current one expires.
What Is Term Life Insurance?
Term life insurance provides a tax-free lump sum benefit to your beneficiaries if you pass away during the policy term. This payout is designed to provide financial relief so your family can maintain their lifestyle, pay off debts, and cover other expenses.
This type of insurance is particularly suitable for:
- Families: To replace lost income and ensure dependents are financially supported.
- Individuals with debt: Like a mortgage or student loans, to ensure these obligations are covered.
- Business owners: To protect the business or provide a buyout option in case a partner passes away.
For most people, term life insurance is more worth it than permanent life insurance because it allows you to purchase a large amount of coverage at a relatively low cost.
The amount of coverage you need depends on your personal and financial situation. In general, the death benefit should be enough to pay off debts and replace your income, ensuring your family avoids financial strain. You can choose your term length and coverage amount, with premiums guaranteed to stay the same during the term.
Common term lengths include 10, 20, and 30 years, but some insurers allow terms from 5 to 50 years, providing flexibility to suit your needs.
What happens when the term expires?
Contrary to popular belief, your term life insurance doesn’t simply expire at the end of its term. Instead, if there has been no payout (i.e. you’re still alive), it automatically renews at a higher premium, guaranteed for a period identical to your original term length. For example, if you had a 10-year term, your policy would renew for years 11–20 at a higher rate. After that, it could renew again for years 21–30, and so on.
Here’s how it works in practice:
- If you’re paying monthly, the insurance company will continue withdrawing the higher premiums unless you notify them to stop.
- If you’re paying the premiums annually, the insurance company will send an invoice showing the new, higher premium amount. If this invoice isn’t paid within a 31-day grace period after the renewal date, the policy will lapse.
- You’ll receive advance notice about the renewal and rate increase before the term ends, so you can prepare ahead of time.
Renewing your term life insurance offers the benefit of guaranteed acceptance, even if your health has deteriorated. However, this comes at a significant cost: renewal premiums are dramatically higher, sometimes as much as ten times the original premium. This increase reflects the insurer’s increased risk, as they don’t assess your current health and therefore must mitigate their risk by charging significantly higher premiums to cover the possibility of newly developed health issues.
Some insurance companies now offer annual increases instead of term-based renewals, meaning the premium rises steadily each year after the initial term ends. For instance, the premium of a term-10 policy for year 11 would be higher than years 1–10, year 12 would be higher than year 11, and so on.
Most insurance companies provide a renewal option for term life insurance policies up to a specified age, typically 85, which represents the policy’s ultimate expiry. Other term policies offer renewal up to age 100, at which point the policy is considered paid-up, and no further premium payments are necessary to maintain the death benefit.
Importantly, the renewal premiums are predetermined and guaranteed from the start of your term insurance policy. This means you can see the future cost of renewal when you first purchase the insurance, allowing you to plan ahead.
Your Options When Your Term Life Insurance Ends
When your term life insurance ends, you have several options to consider. Below are the main paths you can take:
Renewing your term insurance policy
Renewing your policy is often the least attractive option due to the significant rate increase upon renewal, as explained in the previous section. However, you might choose to renew if both of the following are true:
- You need coverage for a few more years: You may still have outstanding debts, have extended your mortgage term through refinancing, or are a few years from retirement and need income protection for your dependents.
- Your health and lifestyle have declined: If obtaining a new policy is either prohibitively expensive or impossible due to medical conditions or lifestyle risks, renewing ensures you maintain coverage without providing evidence of insurability.
Converting to a permanent life insurance policy
Conversion allows you to switch your term life insurance into a permanent policy without undergoing medical underwriting. This option may be suitable if you have a lifelong need for insurance, such as:
- Estate planning: Covering final expenses, paying taxes upon death, or leaving an inheritance for your heirs.
- Building wealth: Whole life policies, for instance, can build cash value on a tax-advantaged basis, which you can access during retirement.
However, keep in mind that you can only convert to the permanent life insurance products offered by the insurer at the time of conversion. If their offerings don’t meet your needs, you may need to purchase a new policy from another insurer, which can be challenging if your health has declined.
When converting a term life policy to permanent coverage, you have flexibility in how much you convert. You can choose to convert any amount, usually with a minimum of $10,000.
Also, you can convert your term policy at any time, not just at the end of the term. Since the conversion privilege typically expires around age 71, you have ample time to make the switch.
Some companies offer an additional option: converting a portion and restarting the rest as a new term policy. For instance, if you’re about to reach the 20-year mark of a $500,000 term-20 policy, you could convert $100,000 to a whole life policy and restart the remaining $400,000 as a term-10 policy. This strategy allows you to maintain term coverage for another 10 years to protect against income loss or debt, while also having a $100,000 whole life policy to cover potential tax liabilities at death.
Pro tip: If you haven’t purchased term life insurance yet and anticipate needing to convert later, research the permanent products available from the insurance company before committing to their term policy.
Purchasing a new term insurance policy
For those in good health at the time of renewal, purchasing a new term policy is the most cost-effective option. Renewal rates are high because insurers assume only those unable to qualify for a new policy will renew. If you can qualify, buying a new term policy at a lower premium saves money.
For example, a 35-year-old male non-smoker pays $23/month for a $500,000 term-10 policy. Upon renewal, premiums jump to $127/month for years 11–20. Instead of renewing, he can buy a new term-10 policy at age 45 for $43/month, saving over $10,000 in premiums over 10 years.
The downside is that you’ll need to go through medical underwriting again, which involves disclosing up-to-date health and lifestyle information and may require a medical exam.
Because life insurance underwriting can take several weeks or even months, it’s crucial to begin the process of purchasing a new policy well in advance of your current policy’s expiration—ideally six months or more.
But here’s a critical point: Do not cancel your old policy until your new policy is officially in place. A gap in life insurance coverage, even for a short time, leaves you and your family financially vulnerable.
Reducing or terminating your coverage
If renewing is your only option but the cost is too high, consider reducing the coverage amount. For example, if you no longer need $500,000 in coverage, you could lower it to $250,000 to reduce the premium.
Alternatively, if you no longer have debts or dependents, or if you’ve saved enough to self-insure, you can choose to terminate your policy altogether.
Terminating coverage is especially relevant if you’ve implemented a “life insurance ladder” strategy. This strategy involves purchasing staggered terms (e.g., 10, 20, and 30 years) under one policy to match decreasing life insurance needs over time. As each coverage’s term expires, you drop that coverage, reducing your overall coverage according to your long-term plan.
Factors To Consider When Deciding What To Do
Which of those options should you choose when your term life insurance ends? Deciding your next step requires careful evaluation of several factors. Here’s what to consider:
Your health and lifestyle
Your current health and lifestyle significantly impact your insurability and therefore your options.
Good health and low-risk lifestyle: If you are healthy, live a low-risk lifestyle, and still need term life insurance, purchasing a new term policy is likely your best bet.
This offers two main advantages: lower cost compared to renewing your existing policy and the flexibility to choose a different term length. For example, if you initially had a 20-year term policy but now only need 10 more years of coverage, you can opt for a 10-year term policy, potentially saving you money.
However, you’ll need to undergo medical underwriting, including questions about your medical history and potentially a medical exam and a report from your family doctor.
As an alternative, you could consider a simplified issue term insurance policy. These policies involve a shorter medical questionnaire and skip the medical exam and doctor’s report. While less intrusive, they come with higher premiums.
Declining health or hazardous habits: On the other hand, if your health is declining or you engage in high-risk behaviours (e.g. dangerous sports, driver’s license suspensions, travel to unsafe places, etc.), securing a new affordable policy may be difficult or impossible. In this case, renewing your existing policy might be your only option if you still require coverage.
If you are unsure whether your health and lifestyle would result in a rated policy (meaning higher than standard rate) or a decline, consult with an insurance advisor first. They can help you determine your likelihood of obtaining a policy at standard rates.
Your personal and financial situation
Your reasons for initially purchasing term life insurance likely stemmed from specific financial obligations, such as a mortgage or providing for a young family. As these obligations change, so too might your need for life insurance.
It’s crucial to conduct a comprehensive review of your current personal and financial situation. Major life events—such as a new family member, a home purchase, divorce, or a death in the family—can significantly alter your life insurance needs, including the amount of coverage and the length of time you need it. Ask yourself:
- Do you still have dependents?
- What is the current balance of your mortgage or line of credit?
- How much have you saved?
- Have you had more children?
- Have you taken out business loans?
- Have you purchased additional properties?
Based on this review, you might choose to reduce your coverage amount when renewing or purchasing a new policy, or you might decide to terminate your policy altogether if you no longer need the coverage.
However, remember that reinstating a cancelled policy requires full medical underwriting. Therefore, ensure you’re certain you no longer need the coverage before cancelling, as you may not be able to reinstate it later due to health issues.
Your objectives
Your objectives for having life insurance may evolve as your financial situation changes. What began as family or business protection might shift as your income and net worth grow. You may transition to focusing on tax-efficient wealth accumulation or preservation for future generations.
This is where permanent life insurance can become relevant. It can function as a tax-advantaged savings vehicle while also providing an increasing death benefit to cover growing estate tax liabilities.
Therefore, the ability to convert your term policy to permanent life insurance without further medical underwriting can be a valuable option, especially if your health has declined and you are no longer insurable at a standard rate for a new permanent policy.
Frequently Asked Questions
What happens if term life insurance expires?
Most term life insurance policies don’t expire at the end of your chosen term. Instead, they automatically renew at a higher premium.
Do you get your money back at the end of a term life insurance?
No, term life insurance has no cash value, so you don’t get money back when the term expires. Only certain permanent life insurance policies accumulate cash value.
Does term life insurance automatically renew?
Yes, term life insurance automatically renews when the term ends. If you pay monthly, the insurer will withdraw the higher renewal premium unless you notify them otherwise.
What happens if you stop paying term life insurance?
If you stop paying, your policy will terminate, and coverage will end after a 31-day grace period unless payment is received during that time.
At what age does term life insurance end?
The ultimate expiration date of your policy is typically age 85, although some insurers allow renewal until age 100. At that point, the policy becomes “paid up,” and no further premiums are required.
Do You Have A Term Insurance Policy Ending Soon?
As your term life insurance approaches its end, a lot may have changed in your personal and financial life since you first purchased the policy 10, 20, or even 30 years ago. Ideally, your original policy would align perfectly with your needs, allowing you to terminate it at the end of the term. However, life’s changes often require adjustments to your insurance plans.
It’s crucial to evaluate your current circumstances and make an informed decision about what to do next. Whether you’re considering renewing, converting, purchasing a new policy, or terminating your coverage, starting this process with plenty of time—ideally at least six months before your term ends—gives you the flexibility to secure a new policy if needed. This helps you avoid a gap in coverage, which could leave you uninsured at a critical time.
If you’re unsure about your options, consult a professional and licensed insurance advisor who can guide you in making the right choice. For a free, no-obligation consultation, email info@briansoinsurance.com or call 604-928-1628.
At Brian So Insurance, we provide comparisons across insurance companies to help you secure the best coverage for your needs. We also offer ongoing support to ensure your policy evolves with your changing personal and financial circumstances. Whether you need term or permanent life insurance, disability, health & dental, or critical illness insurance, we can design a comprehensive insurance solution tailored to your situation.
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