If you are the sole breadwinner of your family, it is crucial that you have a term insurance policy. Such a policy will support your family financially when you are not around to provide finances for their well-being. A term insurance policy has a limited period of tenure, after which it expires, and you no longer receive coverage. The expiration of your policy can have various consequences, depending on the stage of life you are in. This article looks at the options you can consider when your policy is about to end.
What is term insurance?
Term insurance is one of the simplest types of life insurance. Its distinguishing feature is that it offers affordable financial protection against life risks for a limited term. It is more cost-effective than other life plans, such as ULIPs, money-back plans, endowment plans, and so on. This is because it does not have any savings or investment element involved in its wordings. Term insurance plans are also known to be available for short periods of time, such as five years. However, you can also choose a tenure of as long as 30 to 40 years.
The premium increases as the tenure does. A smaller tenure means lower premiums and vice versa. A term insurance calculator can help you understand the increase/decrease in premiums due to tenure.
Regardless of the tenure you have chosen, when it comes to an end and you outlive it, you have to take some sort of action regarding your term plan coverage.
What to do when term insurance is about to end
- Let the policy lapse
The natural course of action would be to let your policy lapse. You do not have to take any steps in this situation. The insurer may contact you, asking if you would like to continue with your policy and you can reply in the negative.
However, this means that your term insurance coverage also ends. This option should be taken only if your erstwhile financial dependents no longer require your finances for their well-being. Usually, people in their senior age opt for this choice.
- Extend your coverage for longer
If the expiration of your term insurance is coming near, and you are at a life stage where your loved ones are still financially dependent on you, you should take this option. With most policies, you may not have the option to simply extend the coverage to a few more years.
You can instead opt for a conversion rider, which transforms your limited term coverage into a permanent policy. To avail of this option, you should inform the insurer about the same a year or so before your tenure is about to end. Once the policy expires, you may not have this option. Furthermore, some policies may not offer this rider. It is advisable to clarify your queries with your insurer.
If you are opting for the permanent policy, the premium for the coverage may also increase. You can use the term insurance calculator to see what your premium could be if you opted for the extension. Though the calculator only gives an estimate, it will help you be financially prepared for the costs of the new coverage.
Can a term insurance policy be enchased at the end?
As mentioned earlier, most term plans do not have any savings or investment component. However, some term plans are equipped with a return to premium feature. What this feature entails is that you receive a portion or entirety of the premiums you may have paid throughout the tenure if you outlive the policy.
So, if you have opted for this feature, you will likely receive the sum of all the premiums you have paid. The cost of a term insurance plan with this feature is higher than the regular one.
Term insurance is a vital part of any individual’s financial plan. Whether you are in your 20s or 30s, having term coverage ensures to a great degree that your loved ones will not be left in financial limbo if anything unfortunate were to happen to you. Hence, unless you are at a life stage where you have no dependents, you should continue your term insurance policy.
Do reach out to your insurer to know the nitty-gritty of what term insurance is like in terms of policy extension when the policy is about to end.