You may have been paying premiums on your term life insurance policy for years, and now it’s close to expiring. You may be wondering if all the money you have paid into it will simply vanish.
If your term life insurance policy is nearing its expiration date, it is important to understand the implications and explore your options. The good news? You may not have to lose everything you’ve paid in. Let’s explore what happens to term life insurance when it expires, alternatives to letting the policy lapse and why a life settlement for term life insurance may be your best option.
WHAT HAPPENS WHEN A TERM LIFE INSURANCE POLICY ENDS?
A term life insurance policy only covers a specific period, typically 10, 20 or 30 years. People purchase these policies to protect their families while their kids are young, their debts are high or their family relies heavily on their income.
When term life insurance expires, the policy ends, with no death benefit payable to the beneficiaries. The premiums you paid during the policy term do not accumulate cash value and are not refundable unless the policy includes a return of premium rider.
In short, the coverage stops, and you have nothing to show for the years of premiums you paid into the policy. However, you can take steps to achieve a better outcome.
WHAT TO DO WHEN YOUR TERM LIFE INSURANCE IS EXPIRING
When your term life insurance is nearing its expiration, your options largely depend on your health, age and financial goals. Generally, you can take one of the following steps.
1. Buy a New Life Insurance Policy
If you are still in good health and want to keep some protection, you could apply for a new policy. You’ll have fresh coverage that fits your new stage of life, and you can choose from new term or permanent insurance.
However, remember that the older you are, the more expensive the premiums will be for new coverage. Medical exams and health questions can also make it more difficult to get approved, and you may face a new waiting period.
The point? This option may work if you are relatively healthy in your 50s or early 60s. Others may find it to be a frustrating and expensive restart.
2. Extend Your Current Policy (Annual Renewable Term)
Some term policies (annual renewable term life insurance policies) let you renew coverage one year at a time without a new medical exam. You keep your coverage a bit longer without reapplying, but the cost increases every single year, often by 10% to 12%. So, while extensions can work for a short time, they’re not a long-term solution.
Also, not every policy includes this option. Check your policy or ask your insurer directly.
3. Convert Your Term Policy to Permanent Coverage
Many term policies have a conversion rider that lets you change your term policy into permanent insurance without a new medical exam. This new policy lasts for life and has no expiration date, giving you a chance to keep coverage even with declining health. It also opens up your options for a life settlement, which we’ll explore later. Overall, this option provides lifelong coverage and may benefit those seeking continued financial protection.
The catch is that you need to convert the policy before the rider expires. Every policy is different, and some conversion riders expire years before the policy itself. If you miss the deadline, you lose the opportunity.
4. Let the Policy Expire and Do Nothing
Unfortunately, this is the default for most people. Many do not know their options or assume they do not qualify for alternatives, and they let the policy expire. In that case, your coverage ends, and you walk away with nothing. Plus, you may lose the chance at a life settlement for term life insurance. Doing nothing might seem the easiest option, but it is often the most costly in the long run.
LIFE SETTLEMENTS FOR TERM LIFE INSURANCE: A BETTER OPTION
Fortunately, there’s a better alternative. A life settlement allows an eligible policyholder to sell a life insurance policy for tens of thousands of dollars instead of letting it lapse and losing their investment.
Here is how a life settlement for term life insurance works:
- If your term policy still has an active conversion rider, you may be able to switch it to permanent coverage.
- You can then sell the permanent policy to an investor, who pays you a lump sum and takes over the premiums.
- The buyer gets the death benefit when you die, while you get the cash now.
A life settlement is about making the most of something you already paid for. You don’t throw away your car when the lease ends; you trade it in instead. Think of a life settlement for term life insurance the same way.
When you convert and sell your term life policy, you walk away with cash now instead of getting nothing later, and you get to stop paying premiums. You can use those funds however you wish — whether for retirement, healthcare or family support. And you can sell part or all of the policy, depending on your ongoing coverage needs.
LIFE SETTLEMENT ELIGIBILITY FOR TERM POLICIES
Not every term policy qualifies for a life settlement, but many do, especially if they meet a few critical eligibility requirements:
- Age and health of the insured: Life settlements are generally for people over 65 with some health issues since the policy was issued.
- Policy size: A life settlement typically requires $100,000 or more in coverage.
- Active conversion rider: The rider must still be active to convert the policy to permanent insurance.
- Annual renewable term policy: These policies can sometimes be sold even without a conversion rider.
Tip: If you are unsure what kind of policy you have, it is worth checking before it is too late. One phone call to a knowledgeable insurance professional could help you sell your expiring term life policy for more money than you thought possible.
TALK TO THE EXPERTS BEFORE YOUR TERM POLICY EXPIRES
Letting your term life insurance policy expire without considering your options could mean leaving money behind. But if you act while your policy is active and your conversion rider is still in force, you could turn an expiring term life insurance policy into a valuable asset.
At Life Settlement Advisors, we can help you determine whether your policy qualifies. Let us walk you through your options and help you make the most of your term life policy.
Contact LSA today for a free, no-strings-attached consultation.
