What is a term life insurance policy? Exactly what its name implies: A life insurance policy that provides coverage for a specific term or period of time, typically between 10 and 30 years.
While a universal and whole life insurance policy provide permanent coverage with a cash value component1, a term policy is a pure life insurance product designed only to give your beneficiaries a payout if you pass away during the term.
If your policy’s term is coming to an end, you can just let the coverage expire and go without life insurance. That is an option that some people choose, especially if their children are mature and financially independent, and there are enough saved assets to take care of their spouse or partner. If your family still needs the financial protection of life insurance, however, you have three basic choices:
1 - Extend your current term policy
Technically speaking, you can usually keep on renewing your policy on a year-to-year basis until you are 95 years old. That’s because most term life policies have guaranteed renewability feature that lets you extend your coverage – and current death benefit – without going through a new underwriting process and getting another medical exam. However, the insurance company will change your premium if you extend. While this can make sense for some people, it may not be the best choice for most. (We’ll explain why in the next section.)
2 - Convert your term policy to a permanent policy
Many term life policies sold now contain a conversion option or rider, which lets you convert your term policy into a permanent policy without having to provide evidence of insurability (i.e., getting a new medical exam). Different insurance companies have different ways of handling term-to-permanent conversion, so you’ll need to look at your policy to see what your available options are. For example, some companies will let you convert to a universal life policy but not a whole life policy. There will be a specific deadline as well: some insurers let you convert at any point during the term of your policy; others may only let you do so during the first few years of coverage, or until a certain age. This may be an attractive option, but you should begin the conversion process well before your term expires – at least a year before your policy’s stated conversion deadline.
3 - Get a different life insurance policy
Think about how your life has changed. Maybe you have more savings and don’t need the same amount of life insurance coverage. Or maybe you have a bigger family and need more. The type of policy that was right for your needs 10, 15, or 20 years ago may not be the best choice for your current needs today. This can be an opportunity to fix that.
§ 8.14 Provision for extended term insurance - other than 5-year level premium term or limited convertible 5-year level premium term policies.
(a) After the expiration of the first policy year and upon default in the payment of a premium within the grace period, if a permanent plan National Service Life Insurance policy other than the modified life plan has not been surrendered for cash or for paid-up insurance, the policy shall be extended automatically as term insurance. The extended term insurance shall be for an amount of the insurance equal to the face value of the policy less any indebtedness for such time from the due date of the premium in default as the cash value less any indebtedness and a charge for administrative cost for insurance issued under 38 U.S.C. 1925, will purchase when applied as a net single premium at the attained age of the insured. For this purpose the attained age is the age on the birthday anniversary nearest to the effective date of the policy plus the number of years and months from that date to the date the extended term insurance becomes effective. The extended term insurance shall not have a loan value, but shall have a cash value.
(b) Upon default in payment of a premium within the grace period on any permanent plan of National Service Life Insurance other than the modified life plan and any plan of insurance issued under 38 U.S.C. 1925, if the policy has been in force by payment or waiver of premiums for not less than 3 months nor more than 11 months, the policy shall be extended automatically as term insurance. The extended term insurance shall be for an amount of insurance equal to the face value of the policy less any indebtedness for such time from the due date of the premium in default as the reserve of the policy less any indebtedness will purchase when applied as a net single premium at the attained age of the insured. For this purpose the attained age is the age on the birthday anniversary nearest to the effective date of the policy plus the number of months from that date to the date extended term insurance becomes effective. Extended term insurance under this provision shall not have a cash or loan value. This paragraph shall be effective from and after August 2, 1948.
(c) Upon default in payment of a premium within the grace period, if a modified life plan of National Service Life Insurance has not been surrendered for cash or paid-up insurance and if the policy has been in force by payment or waiver of premiums for not less than 3 months, or for not less than 1 year for insurance issued under 38 U.S.C. 1925, the policy shall be extended automatically as of insurance equal to (1) the Initial Face Amount of Insurance (face amount of policy in force prior to insured's 65th birthday) less any indebtedness, for lapses which occur prior to the insured's 65th birthday, or (2) the Ultimate Face Amount of Insurance (face amount of policy in force on or after insured's 65th birthday) less any indebtedness, for lapses which occur on or after the insured's 65th birthday. The extended term insurance shall be for an amount of insurance equal to:
(i) The initial face amount of insurance (face amount of policy in force prior to the insured's 65th or 70th birthday, depending on the plan of insurance), less any indebtedness, for lapses which occur prior to the insured's 65th or 70th birthday, depending on the plan of insurance, or
(ii) The ultimate face amount of insurance (face amount of policy in force on or after insured's 65th or 70th birthday, depending on the plan of insurance) less any indebtedness, for lapses which occur on or after the insured's 65th or 70th birthday, depending on the plan of insurance. If a modified life plan policy is on extended term insurance at the end of the day preceding the insured's 65th or 70th birthday, depending on the plan of insurance, the amount of extended term insurance in effect under such policy shall be automatically reduced by one-half thereof. If the policy lapsed prior to the end of the first policy year, the extended term insurance shall not have a cash or loan value. If the policy lapsed after the first policy year, the extended term insurance shall not have a loan value, but shall have a cash value.
(Authority: 38 U.S.C. 1906)
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§ 8.15 Provision for paid-up insurance; other than 5-year level premium term or limited convertible 5-year level premium term policies.
If a National Service Life Insurance policy on any plan other than 5-year level premium term or limited convertible 5-year level premium term plan has not been surrendered for cash, upon written request of the insured and complete surrender of the insurance with all claims thereunder, after the expiration of the first policy year and while the policy is in force under premium-paying conditions, the United States will issue paid-up insurance for such amount as the cash value less any indebtedness, and a charge for administrative cost for insurance issued under 38 U.S.C. 1925, will purchase when applied as a net single premium at the attained age of the insured. For this purpose the attained age is the age on the birthday anniversary nearest to the effective date of the policy plus the number of years and months from that date to the date the paid-up insurance becomes effective. Such paid-up insurance will be effective as of the expiration of the period for which premiums have been paid and earned; and, any premiums paid in advance for months subsequent to that in which the application for paid-up insurance is made shall be refunded to the insured. The paid-up insurance, if eligible to participate in and to receive dividends, shall be with the right to dividends. The insured may at any time surrender the paid-up policy for its cash value or obtain a loan on such paid-up insurance.
The following state regulations pages link to this page.
Extended term insurance is a type of life insurance that is designed to make whole life insurance more attractive. Here are the basics of extended term life insurance and how it works.
Forfeiture
When you purchase a whole life insurance policy, part of the premiums that you pay are going to go towards accumulating a cash balance. Over the years, this amount of money can grow to become very substantial. In the past, if you did not continue to pay your insurance premiums, you would have to forfeit this cash balance back to the insurance company. As a way to avoid this potential problem, life insurance companies started providing a non-forfeiture option known as extended term insurance.
Extended Term Insurance
Whenever an individual could not afford to continue paying their premiums, they would instead be able to get extended term insurance. The insurance company would take the cash balance that is remaining on the policy and then use that amount of money to purchase term insurance. The individual would then be covered by a term life insurance policy that lasted for a specific period of time. The length of the term insurance policy would depend on how big the cash balance was at the time of forfeiture.