Is there still a payout if I don’t die while my term life insurance policy is active?
Throughout the duration of your term life insurance policy, you’ll pay monthly premiums to keep your coverage in effect. A common question among insured individuals is:
What happens to my premiums when the policy expires?
At the end of your term, coverage will end and your payments to the insurance company will be complete. If you outlive your term life insurance policy, the money you have put in, will stay with the insurance company.
Term life insurance is not a savings or investment plan. The premiums paid by those who don’t die while their policies are in force will ultimately be used for life insurance payouts to the families of those who were not as lucky to have outlived their policy.
Where does my money go for my term life insurance policy?
Everyone who is paying life insurance premiums is essentially putting their money in a large metaphorical bucket managed by the life insurance carrier.
When the company needs to pay out a death benefit, they use the funds from that bucket. Your money helps another family in need of financial support because of a lost loved one.
If you die during the term of your policy, the company reaches into that bucket that everyone is paying into and gives that money to your beneficiaries.
For those who don’t understand why they don’t get a refund if the coverage isn’t used, we ask that you consider your car insurance. You pay your car insurance premiums to protect against the what-ifs.
You don’t actually hope you get into a car accident, right? And if you don’t use your car insurance, and then sell your car, you don’t get refunded the insurance premiums, do you?
Term life insurance is a similar concept. You buy life insurance coverage during your earning years, the years your family relies on you the most, yet still hope you don’t die. But if the worst should happen, the term life insurance coverage is there to help your family financially.
What are the benefits of term life insurance?
Term life insurance is a great option for most families because of how affordable it is. It’s designed to protect your loved ones during your prime earning years and end when your debt is lower, and your net worth is higher. Plus, the price you pay will never change throughout the duration of the policy.
To help families who lost a loved one, the life insurance premiums paid by those who outlive their policy will be used for payouts.
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What if I have a (ROP) return of premium term policy?
They are rare, but if you have a return of premium term life insurance policy, you get back the premiums you paid. Owners of ROP policies pay higher premiums for the benefit of knowing they get back their money if they outlive their term. Consider the comparison quotes table below.
|Estimated Monthly Cost of a 20-Year $500,000 Policy for a Healthy Male|
|Age||Term Policy||ROP Term Policy|
» Calculate: Life insurance needs calculator
What if I want to continue being covered with life insurance?
If your term life insurance policy is ending and you want to continue to make sure your family is protected, you have some options,
- You can convert the policy into a permanent one (e.g., a whole life or universal life insurance policy).
- You can renew your term coverage.
Converting Your Policy
Most term life insurance policies have a conversion rider automatically included. The rider would ensure you can convert your term policy regardless of your age or health status. As long as you convert before the set deadline.
The benefits of converting a term policy:
- You don’t have to go through underwriting or take a medical exam.
- You maintain the original health rating from the term policy.
- You can decide when and how much of the coverage to convert.
- You can opt to have life insurance coverage for your entire lifetime.
If you decide to convert, your premiums will increase drastically. A conversion option is typically only taken advantage of if your health has declined and you’re no longer insurable otherwise.
Renewing Your Policy
Another option is to renew your term policy. Many insurance companies have renewability options on their term products. This means you can extend the coverage term year after year without having to re-qualify.
For example, let’s say you purchased a 20-year term life insurance policy when you were 30 years old. Your annual cost is $244. Your policy is set to expire when you’re 50 years old.
You can choose to renew the policy to extend the coverage, but the renewal premiums jump to $2,989 annually for the 21st year. Each year these annual premiums increase every time you renew the policy.
» Compare: Term life insurance quotes
The benefits of renewing a term policy:
- Allows you to reclaim your coverage at the end of your initial term.
- Allows you to keep the original face value amount (or death benefit) of your policy.
- Permits you to renew your term life policy without having to start the application process again.
- Exempts you from answering medical questions or undergoing a medical exam to prove insurability.
Similar to converting, people don’t typically opt to renew their policy unless they are only given a short amount of time left to live due to terminal illness.
A more affordable option…
Converting and renewing policies can be quite expensive. If you’re still even a little bit healthy, we recommend you look into buying a new term life insurance policy if you still want more coverage. This is a more affordable route than converting or renewing your term policy.
No one ever anticipates needing to use life insurance, but if the unexpected happens make sure your loved ones are protected. Be prepared and get a free and anonymous term life insurance quote today.
Additional Helpful Content
We understand learning the ins and outs of life insurance can be tedious. To help you find the information you’re looking for, here are related articles that people like you found valuable.
- What Is Return of Premium Life Insurance?
- How Do Term Conversions Work?
- Life Insurance Buyer’s Guide
- Term Life Insurance FAQs
Note: Life insurance quotes used in this article are accurate as of December 10, 2021. These are only estimates and your life insurance costs may be higher or lower.
Watch the What If I Outlive My Term Policy Video
Listen to the What If I Outlive My Term Policy Transcript
Read the video transcript
Welcome to Quotacy’s Q&A Friday where we answer your life insurance questions. Quotacy is an online life insurance agency where you can get life insurance on your terms.
I’m Jeanna and I’m Natasha.
Today’s question is: Can I cash out my term life insurance policy?
The answer is no. And this is because term life insurance does not accumulate a cash value like some permanent life insurance does so there’s nothing to cash out.
So if you outlive your policy the coverage simply ends.
Your coverage ends and you get to celebrate still being alive.
However, if you want term life insurance and don’t mind paying extra for a guarantee then you might want to consider return of premium term life insurance.
Can you explain what that is to our viewers?
Sure! Return of premium term life insurance is pretty much what it sounds like. It’s a term policy, but if you outlive it, you’re returned your premiums.
So it’s a guarantee because either your beneficiaries receive the death benefit or you’re returned all the money you’ve paid in.
Exactly. There’s a catch though. Return of premium term life insurance is more expensive than a regular term life insurance policy.
How much more expensive?
Well, for example, a 20-year $500,000 term life insurance policy for a healthy 30-year-old is going to run you about $30 per month. That same policy as a return of premium term life insurance policy will run you about $100 a month.
That’s quite a difference.
It is, but to some people it’s worth it. If you’re financially stable, you have monthly contributions going to retirement plans, and you don’t mind paying extra for that guarantee then return of premium term life insurance is a great option.
And don’t some return of premium term life insurance policies offer a cash value?
They do, but this cash value accumulates slowly and does not get added on to the death benefit or your returned premiums.
So what’s the purpose of the cash value?
Well, you can take a loan out on this cash value if you’d like. But like any other loan it accrues interest and you need to pay it back. So if you were to outlive your policy, when the insurance company is returning your premiums to you, they’re going to subtract that loan amount and interest. And if you were to die during the term, the insurance company will pay your beneficiaries the death benefit, but they’re going to subtract that loan amount and interest.
So what if you decide you still want coverage after your term ends?
The two most common ways of continuing coverage are to either buy a new life insurance policy or convert your term life insurance policy into a permanent life insurance policy as long as that conversion option hasn’t expired yet. Policy conversion is a little complicated. Let’s talk about that next week.
If you have any questions about life insurance leave us a comment. Otherwise, we’ll see you next week when we talk about term conversions. Bye!
Image credit to: Ashim D’Silva
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