When you purchase a term policy from any of the top life insurance companies, you will get coverage that has an end date.
That is why, you have to make a decision at the outset on getting a longer term so you have guaranteed coverage for a longer period of time, or trying to get the best term life insurance rates on a shorter term, but risk outliving your policy.
Now, there are options for you even if your term life insurance policy comes to an end.
You see, a common question that we’ll often get asked by someone thinking about buying a term life insurance policy is…
“What Happens If I Outlive My Term Life Insurance?”
This is a great question to ask; the only problem is that the most common answer to this question typically leaves someone upset or misled depending on the type of life insurance policy you’re considering purchasing (think guaranteed renewable).
This is why…
We wanted to take a moment and discuss what “can” happen when a term life insurance policy ends and how this may influence what type of life insurance policy you ultimately decide is the right “kind” for you.
Questions that will be addressed in this article will include:
- What is a term life insurance policy?
- What happens to the money paid into a term life insurance policy if the policy ends before I pass away?
- What does “guaranteed renewable” really mean?
- What other options are there, aside from purchasing a term life insurance policy?
- Why do most financial advisors tell their clients to buy term life insurance vs. whole life?
- How can I best ensure that I find the right life insurance policy for me?
So, let’s dive right in!
What is a Term Life Insurance Policy?
A term life insurance policy or, more specifically, a level term life insurance policy is probably one of the most common types of life insurance policies in the United States today.
These types of life insurance policies are also the ones that most financial advisors will recommend to their clients because they are generally easy to understand and quite affordable.
The way that they…
Work is, once an individual has been able to qualify for coverage, he or she will agree to pay a premium for a set number of years in return for coverage for a set number of years (or term).
Most term life insurance policies will be offered in 10, 15, 20, 25, or 30-year terms however, some insurance carriers may provide additional options, including longer-term periods of 35 and 40 year term life insurance.
During the “chosen” term period…
The insured will agree to make payments to the insurance company in exchange for an agreed amount of coverage, commonly referred to as a “death benefit” that would go directly to one’s beneficiaries if the insured died before their term expired.
Term Life Insurance Rates
We provided some term life insurance rates as an example of how much life insurance will cost in your 30s versus in your 50s.
Life Insurance in your 30s
Life insurance in your 50s
So, you see the huge difference in price between a 30 year old and a 50 year old.
What is your point?
The point is, locking into a longer term period while you are young can save you a considerable amount of money in the long term.
Another strategy would be to get a new policy at age 40 or 45, that will last you until retirement, so that you have a couple policies in place for the needed amount of time you want, say until you are retired, the mortgage is paid off, or the kids leave the house.
Term Life Insurance Calculator
You can use our calculator below to get an idea of how much term life insurance you may need.
Your total cost for years of retirement at per year is:
Assuming you retire at age , you have investing years left. Using a annual rate of return for your investments, you're expected to earn a total of .
What happens to the money paid into a term life insurance policy if the policy ends before I pass away?
If you outlive your term life insurance policy (meaning that you did not die before the agreed-upon term period ended), what happens is that all of the premium payments paid by you to the insurance company will be LOST.
Some folks may feel like this is “unfair” it’s important to realize that while you were insured, the insurance company was on the “hook” for quite a bit of money.
And had you died while fully insured, they would have, in fact, lost a significant amount of money on your policy (presumably).
Which of course, is the risk that they (the insurance company) chose to take by approving your life insurance application.
It should also be noted…
That even though the insurance company didn’t have to “pay-out” a death benefit to your beneficiaries, they did provide a service to you throughout the policy’s life. It’s just your good fortune that you did not die!
Not Satisfied with this answer?
Well, we can’t blame you on that one, but beware because most insurance companies and life insurance agents realize that this answer isn’t usually the one most insurance shopper’s are looking to hear.
Which is why…
Many insurance companies offer what they call a “Guaranteed Renewable” clause to their term life insurance policies, which is a good thing, and something that most life insurance agents like to mention.
The only problem is that most folks fail to ask many questions about what it means to be “guaranteed renewable.”
What Does “Guaranteed Renewable” Really Mean?
In our experience here at IBUSA, we’ve found that the best way to describe what a “guaranteed renewable” clause is, is to use examples whereby we can demonstrate how it can be both really great and really bad at the same time!
So, let’s take a look.
In our first example, let’s look at someone who’s 30-year term life insurance policy is set to expire at the end of the month and just been admitted into hospice care due to their fight with pancreatic cancer.
In this example, were their term life insurance policy not renewable, this family would face the horrible dilemma of caring for their loved one while simultaneously knowing that their loved one’s insurance was ending soon.
For this family, once the original term expired, they would be able to keep their loved one’s insurance in place by simply taking advantage of the guaranteed renewable clause.
“which is great!”
The only problem is…
That this family is likely to get a pretty big surprise when the get the first insurance bill.
Surprised because, depending on which company they have coverage with, the price of their beloved’s insurance is about to get ASTRONOMICALLY higher than before the original term expired.
But since the insured is in hospice it may make sense to pay the increased premiums for a short period while they are still alive to make sure they have life insurance in place when they die.
For this example, we’re going to want you to consider a 52-year-old woman who has recently gone into remission after battling stage 3 breast cancer. Her treatment consisted of a single mastectomy, and is now considered cancer-free.
The only problem is that her 20-year term life insurance policy that she purchased when she was 32 is set to expire in two weeks, and her new guaranteed renewable rate is expected to triple!
To make matters worse…
In this example is that due to this patient’s cancer, she will be unlikely to be able to qualify for a new term life insurance policy for at least 5 to 10 years, meaning that if she wishes to continue to be insured, she will need to pay this new “increased rate”.
Which sadly will continue to increase year after year until she either can’t afford her coverage any more or decides she can qualify for a new life insurance policy after years and years in remission.
This is an example that many life insurance agents don’t like to talk about when they mention that a life insurance policy has a “guaranteed renewable” clause.
“Sure, it’s renewable, but at what cost?”
What other options are there?
OK, so now that we’ve covered what can happen at the end of one’s term life insurance policy, you may be thinking to yourself…
“Well, none of that sounds all that good, so what other options do I have?”
Which is a great question…
Because there are other options, the most popular being a traditional whole life insurance policy which is designed to last as long as you live and won’t end at any set “term.”
The only problem with…
These “types” of life insurance policies is that these “types” of life insurance policies can cost anywhere from 7 to 10 times the amount that a typical 30-year term life insurance policy would. But, as the saying goes, you do get what you pay for!
Why do most financial advisors tell their clients to buy term life insurance vs. whole life?
The first thing that we want to make very clear before we answer this question is that here at IBUSA, we offer both term and whole life insurance policies to our clients. And, the vast majority of our clients do end up purchasing some type of term life insurance policy (Term vs. Whole Life Insurance).
That said, however…
There are times when a whole life insurance policy makes sense (parent of a special needs child) or when someone wants to utilize a whole life insurance policy as a financial tool for themselves in addition to providing a death benefit to their family (infinite banking pros and cons).
As for the remaining majority…
Who simply want to purchase an affordable life insurance policy for their family, choosing a term life insurance policy will often make sense because its:
- Relatively inexpensive (compared to other insurance types).
- Can last long enough to cover one’s insurance needs.
Lastly, the money saved by not purchasing a more expensive whole life insurance policy will in “theory” leave this “saved money” available to make investments elsewhere that may or may not out perform any accumulated cash value associated with a whole life insurance policy.
“Wow, that was a mouthful!”
So, we can totally understand if you feel a bit lost at this point. But don’t worry, because we here at IBUSA aren’t expecting you to be an expert about life insurance. All we’re trying to do in this article is to get you thinking about what questions you should want to know the answers to before you decide to apply for a life insurance policy.
How can I best ensure that I find the right life insurance policy for me?
In our opinion, here at IBUSA, there are two things that one must do to increase their chances of being able to qualify for the “best” possible life insurance policy.
First, you’re going to want to make sure that you “shop” your options, and second, you’re going to want to make sure that you work with a life insurance agent who will take the time to explain exactly your options are.
You’re probably just going to end up buying the first thing that “seems reasonable,” never really knowing whether or not you’re getting a good deal. Fortunately, we here at IBUSA focus a large amount of our time helping folks just like yourself, so if you do decide to give us a call, you’re sure to get the help you deserve.