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 are complete. If you outlive your term life insurance policy, the funds are forfeit. Term life insurance is not a savings plan. The premiums from individuals who don’t die while their policies are in force ultimately support the generous payouts that insurance companies can pay to those who do.
Where does my money go for my term life insurance policy?
Everyone who is paying life insurance premiums is essentially putting all their money in a large metaphorical bucket managed by the life insurance carrier.
When the company needs to pay out a death benefit, they take the pay out amount from that bucket. Your money helps another family in need of financial support because of a lost loved one. And, 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.
If you outlive your term life insurance policy, the funds are forfeit. Term life insurance is not a savings plan.
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 can convert the policy into a permanent one. Common permanent life insurance policy options include whole life and universal life insurance.
Most term insurance policies have a conversion rider automatically included. The rider would ensure you can’t be deemed uninsurable by the insurance company no matter your age or health status. If you decide to convert, your premiums will increase drastically. A conversion option is typically only taken advantage of if you’re no longer insurable otherwise.
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 much affordable route than converting or renewing your term policy.
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What if I have a 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.
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.
Watch the What If I Outlive My Term Policy Video
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?
Not sure how much term life insurance you need?
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.
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