What Happens At End Of Term Life Insurance

When you buy a term life insurance policy, you select a policy term for it. The policy term is essentially the time span during which the policy will remain active. It can be 20 years, 30 years, 35 years, or more depending on your financial goals, dependent family members, etc.

The policy will pay your family a death benefit, i.e., a sum of money if you pass away during the policy term. But what happens if you survive it?

Well, since term life insurance is pure risk cover, a regular plan will not pay you anything if you survive the policy term. It will expire once the policy term is over and the coverage will end.

What exactly happens when the policy expires? What options do you have?

We’ll discuss all this in the article below. Let’s start!

What Term Life Insurance?

A term life insurance policy is a pure risk cover. It is basically a contract between you and the insurance company, where the insurance company promises to cover your loved ones in exchange for the premiums you pay.

It ensures your family’s financial security by giving them the sum assured if you pass away during the policy term. It provides coverage for the policy term you’ve chosen at the time of policy purchase.

What Happens When Your Term Life Insurance Plan Expires?

As discussed before, if you pass away during the policy term, your nominee is eligible to receive the sum assured as the death benefit.

But, if you survive the policy term, you do not receive anything from the insurance company - except in the case of a Term Return of Premium Plan (TROP). A TROP plan gives you a maturity benefit of the total premiums you have paid (minus taxes) if you outlive the policy term.

Options When Your Term Life Insurance Is About to Expire

Here’s what you can do when your term insurance plan is about to expire -

If you have purchased a TROP plan

If you have a TROP plan, you will be entitled to get a maturity benefit from your insurer in case you survive the policy term. This maturity benefit is the total of your premiums paid during the policy term minus taxes. Example Safa, a 35-year-old, buys a Term Return on Premium plan with a sum assured of Rs 50 Lakhs and a policy duration of 25 years. She needs to pay an annual premium of Rs 30,000 (excluding tax). She appoints her spouse, Latif as the nominee.

Here's how Safa’s Term Return on Premium plan will pay out the benefits -

• Death Benefit If Safa passes away during the term of the policy, Latif will be eligible to receive Rs 50 Lakhs as the claim amount.

• Maturity Benefit If Safa survives the policy tenure of 25 years, she will get a refund of the premiums she has paid - as per the policy T&Cs.

When you know that your policy is nearing maturity, you can get all your documents like the original policy copy, premium paid receipts, etc., ready to get your maturity benefit from the insurer.

If you have purchased a regular term life insurance plan

If you have purchased standard term insurance, the plan will expire on its maturity date.

Example If Safa had opted for a regular term plan, here’s how the insurer would pay the benefits -

• Death Benefit If Safa passes away during the term of the policy, Latif will be eligible to receive Rs 50 Lakhs as the claim amount.

• Maturity Benefit Safa will not receive anything if she survives the policy term since this is a regular term policy.

If your term plan expires and you still have financial obligations or dependent family members, you should think about purchasing a new term insurance plan.

There might be a chance that you won’t be eligible to buy new term plan or the premiums might be very high, because of factors like your age, health conditions, etc. And, so, you should foresee your financial responsibilities and buy a plan with the right policy duration to avoid all these hassles in the future.

How Can You Select The Right Policy Duration?

This is a very subjective question. Term insurance is a personal product and the ‘right’ policy duration will purely depend on your and your family’s financial needs. You will have to assess various factors such as your financial assets and obligations, your and your family’s financial goals, etc.

These factors will give you an idea of when you will become ‘financially free’. You generally become financially free when no one depends on your income anymore, you’ve accrued enough wealth for a lifetime, and you’ve fulfilled all your financial responsibilities. Once you become financially free, it makes no sense to have a term insurance plan because the coverage will not be useful to anyone.

So, you should estimate the age by which you expect to be financially free and that will give you the correct policy duration.

For instance,

• If you have a housing loan that you intend to close within another 10 years and no other major financial responsibilities, you can choose a term insurance plan for 10 years.
• If your child is currently studying and you expect them to finish their education in another 12-15 years and become financially independent , you can choose a term insurance plan for 15 years.
• If you have many financial obligations and estimate that you will clear them off in the next 30-40 years, you can choose a 30 or 40 years term insurance plan.

To Conclude

When your term life insurance is about to expire, it is important to review your responsibilities and determine if you still need a term plan. If you do, you should consider purchasing a new plan. And, it’s always a good practice to select the right policy term during your first purchase itself, so tat you don’t have to run into any troubles in the future. Ultimately, it is important to have a clear understanding of your financial needs and to make an informed decision that will protect your loved ones in the event of your passing.