What Happens to Term Insurance After Maturity?
When your term life insurance policy matures, understand the implications and choices for your ongoing coverage needs.
Term life insurance provides financial protection for a specific period, typically 10 to 30 years, unlike permanent life insurance which covers an individual for their entire life. When a term policy reaches its “maturity” date, the predetermined coverage period ends. Policyholders then face decisions regarding their insurance needs.
When Coverage Ends
If no proactive steps are taken by the policyholder when a term life insurance policy reaches its maturity date, the policy will simply expire. This means that the insurance coverage ceases, and the insurer is no longer obligated to pay a death benefit to beneficiaries if the insured passes away after this date. No further premium payments are required, and unlike permanent life insurance, term policies generally do not accumulate cash value.
Policyholders should be aware of their policy’s maturity date to avoid an unintended gap in coverage, especially if financial dependents still rely on their income. A lapse in coverage can leave loved ones financially vulnerable, potentially impacting their ability to cover ongoing expenses like mortgages, education, or daily living costs. Some term policies include a “return of premium” rider, which refunds premiums if the insured outlives the term, but these policies are typically more expensive.
Continuing Term Coverage
Policyholders can often renew their existing coverage if the insurer offers this feature. This renewal often transitions the policy into an “Annual Renewable Term” (ART) structure. A primary advantage of renewing is “guaranteed insurability,” meaning a new medical examination is typically not required, regardless of any changes to the insured’s health since the original policy was issued.
Renewing a term policy significantly increases premiums. Premiums are recalculated based on the insured’s attained age at each renewal, leading to higher annual costs. While this can be a viable short-term solution, especially if health has deteriorated, escalating costs can make it less affordable over time. Renewal options may also have age limits, with coverage generally available up to ages such as 90 or 95.
Transitioning to Permanent Coverage
Many term life insurance policies include a conversion option, allowing policyholders to switch to a permanent life insurance policy, such as whole life or universal life. A primary benefit of this conversion is the ability to obtain lifelong coverage without a new medical examination or evidence of current insurability. This can be advantageous if the policyholder’s health has changed since the original term policy was issued, as it avoids potential higher rates or denial of coverage.
Premiums for the new permanent policy will be considerably higher than original term premiums, reflecting lifelong coverage and potential cash value accumulation. The premium amount for the converted policy is typically based on the insured’s age at conversion. Permanent life insurance policies build cash value over time, which grows on a tax-deferred basis and can be accessed through withdrawals or loans during the policyholder’s lifetime. This cash value provides a living benefit, though accessing it can reduce the death benefit.