What Happens to the Premium When a Term Rider Expires?

A term rider provides temporary additional death benefit protection on top of a permanent life insurance policy, such as whole life or universal life coverage. This rider allows policyholders to secure a higher death benefit for a specific period, aligning coverage with temporary financial needs like a mortgage or raising children. This article clarifies how the total annual premium cost changes when a term rider reaches its scheduled expiration.

Components of a Life Insurance Premium with a Term Rider

When a term rider is active, the overall annual premium for a life insurance policy is structured as a combination of distinct costs. It primarily consists of the premium for the base permanent life insurance policy, which provides lifelong coverage and may accumulate cash value. An additional premium is specifically charged for the term rider, covering the temporary, supplementary death benefit for a set number of years.

The total annual premium paid by the policyholder is the sum of these two components: the base policy premium and the term rider premium. The premium for the term rider is typically a fixed cost throughout the duration of the rider’s term, which could range from 10 to 30 years, depending on the policy structure.

Premium Adjustment Upon Rider Expiration

Upon the expiration of a term rider, the specific premium amount associated with that rider is removed from the policyholder’s total annual payment obligation. Consequently, the overall annual premium cost will decrease, reflecting the conclusion of the temporary coverage. The death benefit amount covered by the term rider also ceases, returning the policy’s death benefit to the original base policy amount.

The premium for the base permanent life insurance policy remains unchanged, as it continues to provide lifelong coverage. This results in a lower recurring payment for their continued life insurance protection.

Policyholder Actions at Rider Expiration

When a term rider approaches its expiration, policyholders generally have several options, each with distinct premium implications. One choice is to allow the rider to expire, which results in the overall premium decreasing to reflect only the base policy’s cost. This option is common if the temporary need for additional coverage has passed, such as when a mortgage is paid off or children become financially independent.

Alternatively, if the term rider includes a conversion feature, the policyholder may convert the temporary coverage into a new, separate permanent life insurance policy. This conversion often occurs without new medical underwriting, guaranteeing insurability regardless of current health. This conversion typically establishes a new permanent policy with its own premium, added to the existing base policy’s premium. While the original overall premium on the initial policy still decreases due to the rider’s removal, the policyholder would pay premiums for two separate policies.

A third action involves purchasing an entirely new term life insurance policy to replace the expiring rider’s coverage. This decision results in a new, separate premium for the newly acquired policy, distinct from the original policy’s ongoing payments. Any new policy or conversion, whether to a permanent or another term plan, will generally have a premium based on the policyholder’s age and health at the time of conversion or new purchase. These premiums are typically higher than the original rider cost, as advancing age and health changes increase the cost of insurance.