What Happens when Term Life Insurance Matures?

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.

  • So, what are my options?

  • Well, there are a couple things you can do. First, you should talk to your insurance broker to determine if you may qualify for another term life insurance policy. If your health is decent enough to qualify and you are under a certain age, you may be able to get a new term life insurance policy. Keep in mind, though, that it will most likely be for a much shorter term duration. Premiums will also be based on your age and health condition, so you will be paying more (a lot, perhaps) than what you paid all those years on your last term policy.

  • The other option you may want to consider is converting your term policy to a permanent life insurance policy. This option must be offered by the carrier when you purchase it. The carrier will give you a few years to take advantage of this (you cannot wait until the life insurance policy matures). This option is great because you are guaranteed approval, which means no underwriting or health questions. Basically, they determine what your policy premium will be at the age of the conversion. So, let’s say you take out a term policy at the age of 35, and you are now 40 and want to convert your policy to a permanent, universal life option. Your premium will be based on the fact that you are 40 years old and buying a permanent policy (always more expensive). You are guaranteed the right to do this, so it’s as easy as talking to your broker about it and signing a couple forms.

    Once your term life insurance policy has been converted to a permanent policy, your coverage will most likely be for life. In most cases, a permanent insurance policy lasts until you are 100 or even 125 years old.

When your life insurance policy matures, you may not have too many options, but the great news is that you can still most times secure some coverage. We are happy to assist you in determining if you are a good candidate to either convert your current term life insurance policy to a permanent plan, or secure additional life insurance coverage. Please contact us today for assistance.