Term life insurance can be an affordable way to help ensure your family or loved ones are financially secure in the event of your death. However, it's important to understand what happens when the policy expires.
Knowing this information may prepare you when your policy eventually ends. This way, you won't miss any opportunities for additional cover or financial stability for your family or loved ones.
In this article, we'll explain:
- What is term life insurance?
- How it works
- When does a term life insurance policy end?
- Do you get your money back at the end of a term life insurance?
- Can you renew or convert your policy?
- Your options once the policy term has ended
- Alternatives to term life insurance
- Getting advice
What is Term Life Insurance?
Term life insurance is a type of life insurance policy that provides cover for a fixed period of time. You’ll pay a pre-determined premium each month. If you die during the term, the policy pays a cash lump sum. The length and amount of cover varies between policies, depending on your needs and budget.
How does it work?
The term length can vary greatly depending on what you are looking for and how much you would like pay. Despite this, most policies typically last between 5 – 30+ years. Once the term has ended, your cover expires unless your insurer is able to renew it with another policy.
If your insurer isn’t able to renew your policy, then depending on your current health history and need, you could look into purchasing a new plan.
There are 3 types of term insurance:
- Level term life insurance - Provides a fixed amount of cover for a specified amount of time. The cost of premiums is also fixed during the term.
- Increasing term life insurance - The payout increases over time, usually in line with inflation. However, your premiums will also increase as a result.
- Decreasing term life insurance - Typically used to cover a mortgage. The payout decreases over time, in line with a loan or mortgage repayment. Your premiums are fixed with this type of plan, but are usually cheaper than level term insurance.
When does a term life insurance policy end?
A term life insurance policy ends when the predetermined term length has expired. This may range from 5 to 30+ years, depending on the policy and the needs of the insured.
Once the term has ended, it expires. Some policies will let you renew the cover - if that’s what you want, be sure to check your terms & conditions and check in with your adviser that the option is available. If you don’t opt to renew your policy, or a renewal isn’t possible the policy will end.
Please note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums your cover will stop, your policy will end, and you will receive no benefit. If you have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.
Do you get your money back at the end of a term life insurance?
By purchasing a policy, you’re essentially buying a contract which helps provide financial protection for your beneficiaries when you die. The policy will have a set term, or length of time, during which it is active and provides cover.
If you outlive the term, you will not receive any money from the policy. However, if you die during the term, your beneficiaries receive the death benefit from the policy.
Can you renew or convert your policy?
You may be able to renew or convert your expired policy. This means that you could extend the cover for an additional term length. While converting your policy allows you to switch from a term life policy to a whole life policy.
Renewing your policy is typically done by contacting the insurance company and paying any additional premiums required. The new term length may depend on the insurance company and the policy you choose.
Converting your policy is a bit more complicated. It usually requires you to fill out additional paperwork and pay any additional premiums required. Premiums may vary depending on the type of policy you choose.
It’s important to note that not every insurer and not every plan has a renewal or conversion option, so be sure to check the terms and conditions of your policy.
Your options once the policy term has ended
Once you've reached the end of the policy term, you usually have 4 options:
1. Extend the policy term -This option allows you to extend your current term policy for an additional term length. This is typically done by contacting the insurance company and paying any additional premiums required. Please be aware that this option is not available on every plan.
2. Convert your policy - You can choose to switch from a term insurance to a permanent policy, such as whole life insurance. This is usually done by contacting the insurance company and paying any additional premiums required. Please be aware that this option is not available on every plan.
3. Buy a new policy - You may decide to choose a different insurer offering cheaper premiums. In which case, you can choose to buy a new term life policy through them. Be sure that this plan is adequate for your needs and is affordable to you,
4. Do nothing -Perhaps you no longer feel you need cover. If you don't want to extend or convert your policy, you can simply let it expire and do nothing. In this case, all premiums paid are non-refundable and any death benefit is lost as well.
Alternatives to term life insurance
Term life insurance is a great option for those looking for cover at an affordable price. However, there are other types of life insurance policies that may be better suited to your needs.
- Whole life insurance - this is a type of permanent protection that covers you for your entire lifetime. This is so long as you continue to pay premiums.
Your premium rate and payout value remains fixed throughout the policy, unless you choose to index-link your policy and have it increase with inflation. Learn more about indexation.
- Joint life insurance - this type of cover provides protection for two people (mainly couples) under a single policy. The policy pays out after the first death or once both members have died. It can be a good idea for couples wanting to protect their partner if they pass away first. Like whole life insurance, your premiums are fixed on this policy, unless you add indexation.
- Over 50s life insurance - Designed for those aged 50 and over. It provides a fixed payout amount upon death. It also doesn't require medical exams or health questionnaires, making it an ideal option for those who can’t get cover elsewhere. This plan includes a moratorium period ( a waiting period) for pre-existing conditions that’s usually between 6 months - 2 years. Your premiums on this policy are fixed, and indexation isn’t available.
- Critical illness cover - Pays if you’re diagnosed with a critical illness, such as cancer, stroke, or heart attack. It can be added to your life insurance policy or taken out as a standalone policy. It's important to note that the payout amount and illnesses covered will vary depending on the insurer. Similar to term life insurance, your premiums are fixed unless you add on indexation.
- Death in service benefit - This type of cover is usually offered by employers, paying out a lump sum if you die while employed. It's usually based on a multiple of your salary, so you can help provide for your family or loved ones even when you’re gone.
Getting advice
When it comes to choosing the right life insurance policy, it's important to get professional advice. At Cavendish Online, our advisers can help you compare policies, so you may make an informed decision about which one is best for your needs.
They can also provide guidance on different types of cover, so you can find the right policy for your circumstances. Speak to an adviser to find out more.
