What Happens If You Outlive Your Term Life Insurance Policy?

Understanding Term Insurance Policies

Term insurance plans offer financial support to your family members in the form of a death benefit should you ever die prematurely. This cash amount is tax*-free and is only paid out if you die within the policy's term and if the policy is in effect.

So, if the policy was inactive/lapsed at the time of death, your family will not get a death benefit.

Generally, term policies offer insurance coverage for 5 - 40 years and a high sum assured for relatively cheaper premiums when compared to other types of life insurance plans. The premiums for term plans also stay the same throughout the policy term.

Outliving Your Life Insurance Policy: What Happens If You Do Not Die?

Generally, nothing. When your term insurance policy ends, its coverage lapses along with it, and the policy expires. If you still need insurance coverage, you can either buy another term or life policy, renew or try to extend its coverage.

With term insurance plans, there are two outcomes:
 

1. If the policyholder dies within the policy term,
   A death benefit, along with other additional payouts (if applicable), is paid to the policy nominee/family members.
   
   
2. If the policyholder survives/outlives the term life insurance plan,
   Nothing is paid out.

Do I Get My Money Back If I Outlive My Term Life Insurance Policy?

Generally, no. Basic term insurance plans do not offer any survival or maturity benefits if you outlive/survive the policy.

However, if you have opted for a Term Return of Premium (TROP) Plan, you get a lump sum payment of all the premiums paid during the policy's term, minus GST^@, if you outlive your policy.

The ROP feature can be added to your policy as an add-on rider^#. At Tata AIA, we offer it as a built-in feature with our term plans that you can opt in or out of on policy purchase. Note that having this feature will increase your policy premiums.

However, it is worth considering if you are a younger individual, still have dependents or if you think you will survive your policy term and want some form of cash payout on policy maturity.

What To Do If Your Term Insurance Policy Is Expiring
 

• Extend Your Coverage: Most term policies today come with a guaranteed¹ renewability option as long as you continue to pay your premiums. However, since your 'policy term' has technically ended, this means your premium amount will no longer remain the same.
  
  

  In other words, your policy premiums will increase every year based on your age, which can get expensive.
  
  

• Covert Your Plan to a Whole Life or Permanent Policy: Many term policies come with a conversion feature that allows you to convert your term plan to a permanent or whole-life plan.
  
  

  The premiums for conversion term plans are often higher but are worth considering if you want to account for future uncertainties.
   

  Moreover, the rules regarding conversion can vary across insurers, so we recommend carefully reading the policy wording and discussing whether this feature is available before policy purchase.
  
  

• Buy a New Policy: If you are young and in good health, buying a new term/life policy may be a better option than extensions or conversions. Premiums would still be lower, and it would cost a lot less than a conversion.
  
  

  However, buying a new policy means you must go through the application process again. So, medical tests, reports, and lifestyle habits will need to be revisited. Your premiums may also be slightly higher since you will be older when buying a new policy.
  
  

  [Also read: How to Increase Term Plan Coverage after Purchasing a Policy?]
   

• Cancel Your Life Insurance: This can apply if you have paid off all existing liabilities and/or saved enough money for yourself and your family to warrant forgoing insurance coverage.
   

  This option should only be considered if you are sure your savings are substantial enough to last your family in case of any eventualities.

What Can I Do if I Have a Been Diagnosed With Critical Illness and My Term Insurance Is Ending?

In these cases, converting to a permanent plan may be best. Here are some ways to retain term insurance coverage if you experience a change in health:
 

• If you have been diagnosed with a chronic but not life-threatening illness, the only way to ensure substantial coverage is conversion. It can increase your premiums, assuming the death benefit stays the same, but it will be more affordable than an extension.
  
  
• If you have been diagnosed with a terminal illness, you can choose to extend your policy, as it can be difficult to find a new life policy that offers a substantial death benefit.
  
  
• If you are shopping around for a term plan and know you are prone to certain critical illnesses, buying a critical illness rider^# with your term plan can be beneficial.
  
  This rider^# will pay a lump sum on diagnosis, which can be used to pay for treatment of the illness/disease. It will increase your premiums but is a good way to cut out-of-pocket expenses when getting treatments.
   

Always disclose any health concerns/conditions that may cause premature death with your insurer before policy purchase to ensure your family is paid the death benefit on your passing.

As long as you have declared your critical illness to the insurer before the policy purchase and your insurer offers coverage for your illness, your family will get the death benefit payout.

Conclusion

Outliving your life insurance policy is not always a bad thing. With most insurance, the goal is to ensure you do not encounter a situation where you or your family has to use it.

However, if you find that your term insurance policy is ending soon, implementing any of the strategies listed above, like getting an extension, converting your plan, or even buying a new one, can be beneficial.
 

Lastly, remember that permanent life insurance is an expense you are committing to for life, so when it comes to conversions, choose a coverage amount that you can afford and can continue to afford well into the future.