When you buy a term life insurance policy, you purchase it for a set term, anywhere from five to 30 years. The difference lies in how you get the policy. People generally only need life insurance when they are paying off debts and are responsible for dependents. Reducing a whole life is quite easy; most companies have a reduction sheet you will need to sign. As long as you pay premiums, your beneficiary will receive the benefit amount upon your death. The cost differential can be very affordable if the “ROP” policy is purchased in your 20’s or 30’s. A 1035 exchange allows you to purchase an annuity policy, which is a long-term savings vehicle sold by an insurance company, without paying income tax on the transfer. Do I need $1 million in life insurance coverage? $commenter.renderDisplayableName() | 12.05.20 @ 07:40, 7 Ways To Protect Yourself From Identity Theft This Black Friday, Use Your Health Insurance Before Year's End, 7 Tips For Selling Your Home During The Holidays, 6 Ways A Budget Can Help Your Credit Score. Risks of not having enough life insurance coverage, How to avoid a life insurance coverage gap. What happens to the policy you’ve been paying for if you don’t die and it expires? Most term life policies allow you to convert to a permanent life policy. Not doing so risks the financial health of your family and negates the reason you bought your original policy in the first place. Premiums for a whole life policy have two components – the cost of insuring you, based on your actuarial risk at the time of purchase, along with an overage to be used for investment purposes (known as the cash-value). Got offered a lower price elsewhere? Copyright © 2020 MoneyTips™ All rights reserved. When purchasing a new term policy, there are many different options to consider: A policy that is typically referred to as term life insurance. It is, except at that point it is no longer a life insurance product, it is a disbursement to you because of the involuntary ending of the contract (albeit for a good reason – you are still alive). Again, six months before the expiration date is the minimum suggested amount of time to have a new policy in place. If your policy is universal or whole life, however, your policy does have cash value, and behaves differently from term insurance when a payment is missed. If you outlive your life insurance policy and you don’t need any more coverage, you can simply let your policy expire. Permanent life insurance may cost more, but it lasts your entire life and can build you cash value that increases the longer the policy is in force. Does where you live affect your life insurance policy? 2. Whole life policies feature a "reduced paid up" non forfeiture provision. During the first few years of this policy, you’ll typically pay less than you would with other term policies, but the rates do increase each year and end up costing you more in the longrun. Even though you have bought life insurance coverage before, changes in your health or other records could mean you’re ineligible to buy a new policy now. But if you still need financial protection for your loved ones, you should convert your term life insurance policy into a whole life insurance policy or get a new policy altogether. The return in cash value is often less than what you can accumulate by simply investing the difference between a return-of-premium policy and a level term policy. Such policies have relatively low premiums and are not paid up until age 95 or 100. 3 When you pass away, the cash value of your life insurance policy remains with the insurance company in most cases, meaning the accumulated cash value funds aren’t paid out to your beneficiaries. With a partial conversion option, you can retain coverage but lower the amount. in Economics from Ohio State University. Convert your term policy to a permanent life insurance policy. Since life insurance is not a savings plan, most people won't need to do anything if they outlive their term life insurance policy. How life insurance works with wills and trusts. It’s easy to get but often doesn’t provide enough of a death benefit and if you leave your job, you lose your coverage. If you still have dependents or financial responsibilities (such as a mortgage) after your policy’s end date, you’ll still need some life insurance coverage. If you just don't want the policy anymore, consider exchanging the life insurance policy for an annuity. What happens when you outlive your policy? Government Shutdown Brings Mortgage Obstacles. If you decide that you no longer need any life insurance coverage after your policy expires, you can just let it expire. What happens when a term life insurance policy ends depends on whether you still need coverage.