What to do when your term life insurance policy runs out

No one knows when they’re going to go; that’s why life insurance is so important. But if you decided on term life insurance, there’s a good chance you’ll outlive your policy.

With a term policy, you’re covered for a set period of time, usually 5, 10, 20 or 30 years.

It’s a cost-effective way to protect your loved ones while they’re relying on your income. However, once your policy ends, it’s time to assess your new needs — and whether you still need life insurance at all.

What happens at the end of term life insurance policies?

Begin by celebrating that you’ve outlived your policy — no small feat in a dangerous world.

With term life insurance, you pay your monthly or yearly premiums, and if you pass away while it’s active, your dependents receive the death benefit. So what happens when a term life insurance policy matures or expires?

Part of what makes term life insurance famously cheap is the lack of cash value. There’s no cashing out, like some whole or universal life insurance policies. You’re not making an investment; you pay the premiums hoping you don’t need the payout.

Once it expires, your coverage simply stops.

If you’re debt free, mortgage free and the rest of your family is financially independent, that’s perfect. You probably don’t need life insurance anymore because there’s nothing you really need to cover in the case of your death — well, besides the funeral costs.

But if you’re still making payments toward your mortgage or have any dependents, you should consider getting a new policy that suits your current needs.

What can you do after your term life insurance policy expires?

If you decide you still need life insurance coverage, you’ll want to make some adjustments. It’s pretty unlikely your new policy will be the same as your old one.

How much longer do you expect you’ll have debts and dependents? How much time and money is left on your mortgage? Are your kids still in school? Let the answers to those questions decide the length and value of your new policy.

Once you’ve figured that out, you’ll need to pick one of the following options:

Renew your term policy

Renewing your current policy is easy but might not be the best option.

It’s pretty standard for insurers to include a feature called guaranteed renewable. That means you won’t need to go through the underwriting process again or get another medical exam to renew.

This could be hugely beneficial to you if your health has deteriorated or you switched to a high-risk job since you took out the initial policy.

The downside? Because insurers aren’t recalculating the real risk you pose in your current state, they set the new rates very high, just in case. If you’re in good health and want to stick with your current insurer, you may want to ask whether you can take a new exam.

Convert your term life insurance into a permanent policy

Many term life policies give you the option of converting your plan to a permanent policy. And just like renewing, they don’t require a new medical exam to weigh your risks.

Unlike term life, part of your premium for permanent policies goes toward an investment component and a cash value. Depending on your new product, you may be able to borrow against that value or even surrender the policy later for a lump sum.

But a permanent policy also requires way, way higher premiums — after all, you will die someday, and the company will have to pay out. It might make more sense to take the extra money you’d be paying and invest it in a way that’s right for you.

Purchase a new term life insurance policy

This may be the most affordable route, assuming you’re in good health.

You may need to get a new medical exam, and you can expect to pay more than your previous policy since you’ve grown older. But you’ll get a new opportunity to look at the other insurance companies out there and find the same coverage for a better price.

You can use an insurance comparison website to quickly compare quotes from a bunch of life insurance companies at once. It takes less than five minutes and you won’t need to provide any contact information.