Term life insurance is a form of life insurance that provides a death benefit for a predetermined period of time. For example, a 20-year term life insurance policy provides a death benefit for a period of 20 years from the policy’s start date.

These policies tend to be the most popular life insurance options as they typically offer the highest death benefits with the lowest premiums compared to other plans like permanent or whole life insurance. Nonetheless, as their name suggests, they do expire. That begs the question:

What happens to a 20-year term life insurance policy when it expires?

If you do nothing, the policy simply expires with absolutely no value. That’s why it’s so important to know when your 20-year term policy expires and what your options are so you can take action before that date comes. Below, we’ll talk about:

• Understanding Term Life Insurance: What term life insurance is, how it works, and the significance of insurance terms.
• Expiration of a 20-Year Term Life Insurance Policy: What happens when your 20-year term life insurance policy expires?
• Options After Expiration: What you can do once your term life insurance policy expires, including converting your policy to a permanent life policy or renewing your term life insurance.
• Comparing Conversion and Renewal: This comparison will help you decide if it’s best for you to convert your policy into permanent life insurance or if it’s best for you to renew your term life policy.
• Impact of Conversion Expiration Dates: Learn what conversion expiration dates are and why they’re important to know.
• It’s Best to Plan For Your Conversion or Renewal Ahead of Time: Learn why you shouldn’t wait until the last minute to plan for your conversion or renewal.
• Real-Life Scenarios: Consider these real-life scenarios to help you decide what you should do when your 20-year term life insurance expires.
• The Bottom Line: Tying everything together to leave you with actionable takeaways.

Understanding Term Life Insurance

As mentioned above, term life insurance is a form of life insurance that provides a death benefit for a predetermined period of time. For example, a $250,000 20-year term life insurance policy offers a $250,000 death benefit for a period of 20 years. So, should the policyholder die within the 20-year period, their beneficiaries will receive $250,000.

Term life insurance policies typically come with terms ranging from five years to 20 years. However, the 20-year term is the most popular, and for multiple reasons:

• Long-Term Coverage: The 20-year term is often the longest term consumers have access to without choosing a more expensive permanent insurance. That long-term coverage is an attractive option, especially for young families.
• Premiums: Term life insurance offers a fixed premium for the entire term of coverage. That’s important because life insurance tends to get more expensive every year. By locking in 20 years of coverage, you’re not just making sure you’re covered for the long term; you’re locking in affordable rates too.
• Adequate Planning Time: In most cases, a 20-year term life insurance policy will offer coverage as long as your kids depend on you and provide you with adequate planning time to figure out what changes you’ll make when your policy expires.

Expiration of a 20-Year Term Life Insurance Policy

As its name suggests, a 20-year term life insurance policy isn’t designed to last forever. Once the 20-year term expires, your life insurance — and the death benefit that comes with it — expires as well. That’s why it’s so important to know when your policy’s expiration date is.

For example, say you purchased a 20-year life insurance policy on September 1, 2014. That means that your policy is set to expire on September 1, 2034. As you near this date, you’ll want to make plans to make sure you maintain coverage for your family.

Of course, if your policy expires, and you do nothing, your coverage expires along with it.

However, you have a few options prior to and after the expiration of your life insurance policy. Continue reading to learn more about your options and which one might be the best for you.

Options Prior to or After Expiration

In general, there are three different actions you can take before or after once your 20-year term life insurance policy expires. Those include:

• Do Nothing: You’re not required to do anything when your term life insurance policy expires. If you choose to do nothing, your 20-year term life insurance policy will expire and lose its value on its expiration date.
• Convert to Permanent Life Insurance: You may have the option to convert your 20-year term life insurance policy into a permanent life insurance policy. If that’s the case, you’ll likely need to do so at least several months before your policy expires. If you convert your policy to a permanent policy, your new life insurance will never expire. So, as long as you pay your premiums, you’ll be covered.
• Renew Your Term Life Insurance: You also typically have the option to renew your term life insurance. However, depending on your age and health status, you may not have access to another 20-year term.

Ultimately, it’s unwise to let your 20-year term life insurance expire and do nothing about it. At the end of the day, you purchased your life insurance policy to protect your loved ones. If you simply let your life insurance expire, that protection will expire with it.

Nonetheless, there are pros and cons to consider when it comes to converting your term life insurance to permanent life or simply renewing your current policy. Here are the factors you should consider…

Converting Term to Permanent Life Insurance

If you choose to convert your policy to a permanent life or whole life policy, you’ll be able to rest assured that your beneficiaries will enjoy coverage no matter how long you live. But that’s not the only benefit of permanent life insurance coverage. Some other benefits include:

• Cash Value: Your permanent or whole life insurance policy will build cash value with each premium payment you make. If you find yourself in a financial bind while you’re in retirement, that cash value could come in handy.
• Low-Cost Loans: Borrowing against your life insurance policy’s cash value typically comes with lower fees and interest than unsecured personal loans and credit cards. So, permanent and whole life insurance policies can open the door to better lending options.
• Riders: You can add additional riders to your policy to create well-rounded coverage based on your financial needs.

Of course, there are plenty of benefits to converting your policy to a permanent or whole life policy, but there’s also a drawback to consider. Whole and permanent life insurance are typically more expensive options than term life insurance. So, you may have to pay a higher premium than you’re used to when you make the conversion.

Renewing Term Life Insurance

You can also choose to renew your term life insurance policy, rather than converting it to a permanent or whole life insurance policy. The process is typically pretty straightforward. Follow these steps to do so:

1. Inform Your Provider: Tell your life insurance company that you’d like to renew your term life insurance policy. They’ll go over your options with you, as there may be significant changes to term availability and your premiums.
2. Submit to Testing: You may not be required to undergo another medical exam. However, in some cases, you may need to submit to medical testing in order to qualify for a new term life policy. If that’s the case, schedule and submit to the medical testing as required by your insurance provider.
3. Pay Your Premiums as Agreed: Finally, simply pay your premiums as agreed throughout the length of your new term life insurance policy.

There are a few benefits to renewing your policy. First and foremost, you’ll already be familiar with how your policy works since it will likely be the same or similar to the policy you’ve had in effect for the last 20 years. Moreover, term life insurance is typically less expensive than permanent or whole life insurance options.

On the other hand, there are a few drawbacks to consider. You may only qualify for a 10-year or shorter term once your 20-year term life policy expires. Moreover, you can expect to pay higher premiums than you’re used to. And term life insurance policies don’t build cash value. If these factors are deal-breakers for you, you may want to consider a conversion rather than a renewal.

Comparing Conversion and Renewal Options

Converting a 20-year term life insurance policy into a permanent life insurance policy and renewing your current insurance may seem like similar options. However, they’re very different. It’s important that you understand the differences between your two options and when each of them makes sense before you make your decision. Consider the following:

• Coverage Length: When you renew your term life insurance policy, your coverage will last as long as your new term. For example, let’s say you renew your policy for 10-year term life coverage. In this case, your new policy will last a period of 10 years. If you convert your policy to permanent life insurance, your new coverage will have no expiration date; it will last until the day you die no matter how long you live.
• Cash Value: If you decide to renew your term life insurance policy, your new policy won’t build any cash value, as was the case with the expired policy. After all, term life insurance comes with no cash value. On the other hand, if you convert your policy to a permanent life policy, you’ll enjoy a cash value component.
• Cost: Chances are that your premiums will go up no matter which option you choose. However, renewing your term life policy is likely to be your lowest-cost option when compared to converting your policy to permanent or whole life insurance.

Although these may seem like minor details, they’re actually important considerations in the grand scheme of things. So, pay close attention to the three factors above.

When a Life Insurance Conversion Is Best

In some cases, a conversion to a permanent life insurance policy may be your best option. That may be the case if:

• You’re In Good Health: If you’re in good health, there’s a strong chance you’ll outlive your next term life policy too. At that point, premiums for renewal or conversion may be significantly higher. As such, it’s likely best to lock in your permanent life premiums now, rather than waiting for them to go up.
• You Want a Cash Value Component: Term life policies have no cash value, but permanent and whole life policies build cash value with each payment. That cash value can provide a financial cushion for you later in life. It can even be an effective way to supplement your retirement income if the need arises.

When a Term Life Insurance Renewal Is Best

Although a permanent life insurance conversion may be the best option in some cases, it may be better for you to renew your term life insurance depending on your unique circumstances. Here are a few examples of when it might be better to renew your term life policy:

• You Need Lower Premiums: Inflation has hit the United States hard in recent years, and many people are struggling to make ends meet. So, it may be difficult to swallow a high premium payment. The good news is that term life insurance is typically less expensive than permanent or whole life insurance.
• You Have Short-Term Coverage Needs: You may not need life insurance for the rest of your life, or at least not the level of life insurance you have now. For example, say your oldest child is going to graduate college in four years. If that’s the case, you may not need as much coverage in a few years. In this case, it may be wise to choose a term life option and opt for permanent life during the next renewal period.

Impact of Conversion Expiration Dates

With most term life insurance policies, you’ll be able to convert your policy to permanent life insurance or whole life insurance. However, the option to convert your policy has an expiration date as well, and that expiration date may be different from your term life insurance policy’s overall expiration date. In fact, you generally need to apply for a permanent or whole-life conversion months or even a year before your current term life policy expires. So, it’s important to look into your conversion expiration date.

If you plan on converting your term life coverage to a whole or permanent life insurance policy, be sure that you start the application by your policy’s conversion expiration date. This is important because it’s typically cheaper to convert your current policy to permanent life insurance than it is to purchase a new permanent life insurance policy on a standalone basis.

It’s Best to Plan For Your Conversion or Renewal Ahead of Time

Importantly, you shouldn’t wait until you’re at or near your life insurance policy’s expiration date to come up with a plan. The reality is that it may take some time to convert your term life insurance policy into permanent coverage. Moreover, if you fail to do so before your conversion expiration date, you’ll likely have to pay higher rates for coverage.

The simple fact is that any process is usually more effective with a plan. Start planning for the end of your term life insurance policy at least 18 months before your policy expires to ensure you have the time you need to make educated and well-thought-out insurance decisions.

A Real-Life Example of a Policy Conversion

Let’s say you’ve had the same 20-year term life insurance policy for about 18 years. Your policy expires in two years, and you know it’s time to start planning for what happens when it does. After speaking with your spouse and your financial advisor, you’ve decided that a permanent life insurance policy conversion is your best option. Some of the factors that helped you make that decision include:

• You’re nearing retirement and believe the cash value component of permanent life insurance may help you if you fall on hard times in your golden years.
• Your children are all grown up and have careers on their own. They no longer depend on you so you can stand to have a lower overall death benefit.
• You’re in good health and you’re worried that if you renew your policy, you’ll outlive the renewal as well. When you do, you fear that you may not be able to afford the higher rates you’ll have to pay at a later date.

So, you look into your current policy and find that you have until one year before the expiration date to convert your term policy into a permanent life policy. Rather than waiting, you start the conversion process now to ensure you have adequate time to handle any necessary processes and enjoy the peace of mind that comes with knowing your loved ones are protected permanently.

The Bottom Line

The bottom line is that term life insurance policies expire. When your 20-year term life insurance policy expires, or even nears expiration, you should already have a plan for either converting to a more permanent policy or renewing your current policy. If you’re not sure which is best, or you’d like to start the process, reach out to your life insurance agent today to discuss your options.