You went through the process of buying a term life insurance policy to protect your loved ones should you pass away unexpectedly. The years have passed and you just received notification that your term life insurance policy is maturing. All kinds of questions run through your head, but the main question is- what happens when term life insurance matures? Do I have any options?
Well, yes and no. Yes, you technically have the option to extend your policy in most cases on annual basis, but I can almost guarantee you that you won’t want to do this, and you’ll send your policy packing when you find out why.
So, what exactly is term life insurance? I’m sure you know but to be clear, term life insurance is a policy that provides pure death benefit protection and nothing else, for a specific duration only. This means that your beneficiary will receive a lump-sum (if they are immediate family, this is also tax-free) death benefit (also referred as “face amount,” too) at your passing. The huge kicker with term life insurance is that this policy has a “term” length, which is the number of years you select when you apply for the policy (or qualify for, as this is also based on your age at the time of the application). This could be 10, 15, 20 or even 30 years. This is the only amount of time you’ll have the coverage for.
So, back to the all-important question… what happens when term life insurance matures? Well, technically, you aren’t insured anymore and your policy is finished. Nothing pays out because you are still alive at the end of the term period. This isn’t a permanent policy like a Universal Life that accumulates a cash/account value that you can use for retirement.
There is the option to renew a term life insurance policy at the end of the term length. Most carriers will allow you to annually renew the policy until you are in your 90’s (95, on average) for a nominal fee. Kidding- it’s an exorbitant fee and when you see the amount they will charge you to keep your policy, you may literally pass out. Let’s say for instance that you pay $2,000/year in annual premiums and want to renew your policy because it has matured. Your premiums now could be $30,000/year. What?! No, it isn’t a typo. The premium to renew the policy is so high that nobody in their right mind could pay it (or even if you could, would you really want to?).
When you receive your policy, there is an annual schedule of premiums that will show what you are paying each year. They’ll be level for the number of years of your term length, then you’ll see another number, the premium amount after that. It will most likely have a lot of zero’s after the number. That is what the carrier will charge you to renew your policy.