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. 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.
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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.
The point of term life insurance is to ensure your family is protected by replacing your income if something unexpected happens to you. If the insurance company doesn’t pay out the death benefit that means you’re still alive and shouldn’t have too much to complain about.
What if I want to continue being covered with a term life policy?
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.
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.
What if I have a return of premium term policy?
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 the unexpected happens. Be prepared and get a free and anonymous term life insurance quote today.
Watch the Return of Premium Life Insurance 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?
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
About the writer
Writer, Editor, and Co-host of Quotacy's Q&A Fridays
Natasha is the content manager and editor for Quotacy. She has been in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. When not at work, she's probably studying and working toward her Chartered Life Underwriter (CLU) designation while throwing a tennis ball for her pitbull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.