Term life insurance is a popular choice for many people because it offers substantial coverage at a relatively low cost for a specific period. However, a common question arises: what happens if you outlive your term life insurance policy? Do you get money back if you outlive term life insurance?
The short answer is no, you don’t get your premiums back at the end of a term life insurance policy. Unlike permanent life insurance, which includes a cash value component, term life insurance is designed to provide pure death benefit protection without any savings element. Once the term expires, the coverage ends, and there is no payout or return of premiums.
Understanding Term Life Insurance
Term life insurance provides coverage for a specified period, typically 10, 20, or 30 years. During this term, if the policyholder passes away, the beneficiaries receive the death benefit. If the policyholder outlives the term, the coverage ends, and no benefits are paid out.
The main advantages of term life insurance are its simplicity and affordability. It’s an excellent option for those who need coverage for a specific period, such as the duration of a mortgage, until children are financially independent, or while income replacement is necessary.
What Happens When the Term Ends?
When a term life insurance policy expires, you generally have a few options:
- Renew the Policy: Many term policies offer a renewal option, allowing you to extend your coverage. However, this typically comes with significantly higher premiums since you’re older and possibly less healthy.
- Convert to Permanent Insurance: Some term policies include a conversion option, which allows you to convert the term policy into a permanent one without undergoing a medical exam. This can be a beneficial option if you still need life insurance coverage and are concerned about qualifying for a new policy due to health reasons.
- Let the Policy Expire: If you no longer need life insurance coverage, you can simply let the policy lapse. While you won’t get your premiums back, you’ve had the peace of mind that comes with being insured during the term.
The Life Settlement Option
For those who find themselves outliving their term life insurance but still have a need for some return on their investment, a term life insurance settlement might be an attractive option. A life settlement involves selling your life insurance policy to a third party for a lump sum payment that is more than the cash surrender value (if any) but less than the death benefit.
How Does a Life Settlement Work?
- Eligibility: To qualify for a life settlement, policyholders generally need to be over the age of 65 and have a life insurance policy with a death benefit of at least $100,000. Health status can also play a role in determining eligibility and the payout amount.
- Evaluation: The life settlement company will evaluate the policyholder’s age, health, and the terms of the policy to determine the value of the policy.
- Offer: If the policy is deemed valuable, the company will make an offer. This offer is usually a lump sum payment that is more than the surrender value but less than the policy’s face value.
- Transaction: Once the offer is accepted, the ownership of the policy is transferred to the buyer. The buyer continues to pay the premiums and receives the death benefit when the original policyholder passes away.
Pros and Cons of Life Settlements
Pros:
- Immediate Cash: Provides immediate access to funds that can be used for medical expenses, retirement, or other financial needs.
- Recoup Investment: Allows policyholders to recoup some of the money spent on premiums, which would otherwise be lost if the policy lapsed.
Cons:
- Loss of Death Benefit: Beneficiaries will no longer receive the death benefit since the new owner of the policy will.
- Tax Implications: The lump sum received from a life settlement may be subject to taxes.
Do You Get Money Back if You Outlive Term Life Insurance? While you won’t get your premiums back if you outlive a term life insurance policy, options like renewing the policy, converting it to permanent insurance, or opting for a life settlement can provide alternative solutions to address your financial needs. A life settlement, in particular, offers a way to unlock some value from your policy, ensuring that your investment in life insurance doesn’t go entirely to waste.
It only takes a short 5 – 10 minute call to find out if your policy is eligible for a life settlement. Please give us a call at 800-727-7654 today to learn if you qualify.