What happens if I outlive my life insurance?

A life insurance policy is a legal-financial agreement between the insurer and an insured person in which the policyholder is assured payment of a death benefit to named beneficiaries. The payment of a death benefit is in exchange for the payment of premiums by the policyholder. 

The main aim of life insurance is to provide a level of financial security to the beneficiaries of an insured individual after his or her death. 

There are two main types of life insurance policy to choose from: They are permanent life insurance and term life insurance

There are different varieties of permanent life insurance available, the main two of which are known as whole life insurance, and universal life insurance

Term life insurance also comes in different forms, including One Year Renewable Term (OYRT), and Level Premium Term Insurance (LPT).

Before you delve into any type of life insurance policy, make sure you are informed about the benefits and risks of them all and select the one that best suits you. Compare all policies and with the help of an independent broker, choose the one that will bring you the most protection and peace of mind for the premium budget you have available.

Term Insurance 

This type of insurance policy provides financial security for a specific number of years or a certain period, say 10 or 20 years.

For OYRT, when the policy is bought there is a certain fee for that year. If you want to renew your coverage the next year you have to pay another premium which is usually higher. So each year you keep paying an increasing amount of premium.

The second type,  LPT, offers a discount off the average amount of premiums you would be likely to pay over a certain number of years.

What happens if you outlive your term life insurance?

You outlive your term policy when it expires as term life insurance. This is because this policy type only provides security for a specific number of years and it therefore has an expiration date. 

If you outlive this type of insurance, there won’t be any payout when the insurance policy expires, no matter how soon after the policy expired the death might occur.

However, there is a type of insurance called Return of Premium (ROP) Term Life Insurance. This is basically a term life policy that allows for all of your premiums to be returned to you if you outlive the term. Additionally, this money is completely tax-free as it is not considered an income.

Nevertheless, before you dive into this option considering how win-win it sounds, you need to know the conditions this offer comes with:

  • Firstly, and as you might expect, this package is significantly more expensive than the average term policy. That is to say, the premiums for the ROP policy cost a lot more.
  • If you cancel the policy before the term runs out, it could result in a smaller refund or even no refund at all.
  • No two ROP policies are the same. Details vary between insurers, so do read the details and conditions carefully.
  • There is no interest paid on your money in this policy, so in real terms the premiums that are returned to you will most likely not have the same value as when you paid them. 

After considering these factors, you may still want to go ahead with the policy. However, if you’re not comfortable with these caveats, and want to stick to regular term life insurance, here are some options to take if you outlive your policy;

  • Conversion of policy; you can extend coverage after your term ends by converting your policy to a permanent one of either whole life insurance or universal life insurance. The permanent ones give you financial protection throughout your life.
  • Get a new policy; you can look for a better deal or a whole new policy that works for you. This, however, benefits certain people more than others. People who are in equally good health as they were when they took the policy out, or better health than they were when they took the policy out, and those who do not have health conditions or other factors that will increase the cost of a new policy stand better chances.
  • Renew the coverage; this is considerably cheaper than conversion to permanent cover, especially if you’re in good health. If you want to renew your coverage, start the process as soon as possible to avoid coverage gap and unnecessary hassles. 

Universal Life Insurance

This is a type of insurance that provides the low-cost security of term insurance, but also has a savings element which is then invested to generate a cash value accumulation. 

What happens if you outlive your universal life insurance?

You ‘outlive’ your Universal Life Insurance when you reach the age that the policy matures. Maturity serves as the expiration date. This age is usually between 85-121. When the policy reaches the maturity age, you receive a payment and the protection from the policy ends. The payment could be in the form of a death benefit or a particular amount of money.

The problem with this is if you’ve used up most of your cash value in the payment of premiums, you would have little money returned to you. 

Whole Life Insurance

This type of insurance pays a death benefit on behalf of the insured to their beneficiaries or dependants, and also accumulates a cash value. As long as the insured keeps paying the premiums each year, you will receive coverage no matter when death occurs.

What happens if you outlive your whole life insurance

Though it falls under the category of permanent life Insurance, it is not as permanent as the name implies. 

Just like universal life insurance, there is a maturity date that invariably serves as the expiration, but this policy is more friendly. These maturity dates usually exceed normal life expectancy, so most policyholders die before their maturity date comes around.

Nevertheless, if you live to a very old age and find your maturity date expiring before you do, benefits would still be paid to you rather than the payment of death benefit to your family members.

The issues, however, are that you might not want to be paid your cash value as technically it is more valuable as a death benefit than when given directly to you. Also, taxes would be deducted from this cash value since it is now considered a general income.

In summary

Before you delve into any type of life insurance policy, make sure you are informed about the benefits and risks of them all and select the one that best suits you. Compare all policies and with the help of an independent broker, choose the one that will bring you the most protection and peace of mind for the premium budget you have available. If anyone relies on you financially, you definitely need an insurance policy, and a good one at that.

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