What Happens When a Term Life Policy Expires?

If you’ve ever signed up for a term life‑insurance policy, you probably know it’s “good for ten years” or “good for twenty.” But what does “good” really mean? What should you expect when that clock runs out? In this post we’ll walk through the life cycle of a term policy, explore the options (and pitfalls) that arise at expiration, and give you a clear action plan so you can protect yourself and your loved ones without any nasty surprises.

1. Quick Recap: What Is Term Life Insurance?

Feature	Detail
Coverage Period	A fixed number of years (typically 5, 10, 15, 20, or 30).
Premiums	Level (stay the same) or sometimes increasing; usually cheaper than permanent policies.
Cash Value	None – you’re paying purely for protection.
Death Benefit	A lump‑sum paid to the beneficiary if you die while the policy is in force.

Think of term life as a “rental” policy: you pay for the right to have coverage for a set period, and once the lease ends, the contract terminates unless you take specific actions to extend it.

2. The Moment the Term Ends: What the Insurer Does

When the last day of the term arrives, the insurer automatically terminates the policy. Two things happen at that exact moment:

No More Coverage – If you’re alive, the death benefit disappears. The insurer is no longer obligated to pay anything.
Premiums Stop – You’ll no longer receive a bill (unless you’ve elected a renewal or conversion, see below).

If you die after the term expires, your beneficiaries receive nothing from that particular policy. That reality underscores why planning for the “post‑term” scenario is critical.

3. Your Options at Expiration

Most carriers anticipate the “what next?” question and embed three standard pathways into the policy contract:

Option	How It Works	Pros	Cons
1. Let It Lapse	Nothing is done; the policy ends.	No extra cost.	No coverage; you may need to buy a new policy at a higher age‑based rate.
2. Renew the Same Term	You can extend the coverage for another term (often the same length) at the renewal rate.	Keeps the same death benefit; no medical exam required.	Renewal premiums can be substantially higher—often 2–3× the original rate, because they’re based on your current age.
3. Convert to Permanent Coverage	Convert the term into a permanent policy (whole life, universal life, etc.) without a medical exam.	Guarantees lifelong protection; builds cash value; no health underwriting.	Conversion premium is usually higher than the original term rate (sometimes comparable to buying a new permanent policy at your current age). Conversion windows are limited (often 1–2 years before expiry).

3.1 Letting the Policy Lapse

If you’re comfortable with the idea that you no longer need life‑insurance protection or if you’ve already built sufficient assets, retirement savings, or an alternative policy letting the term expire is the simplest route. However, it can be risky for anyone whose financial responsibilities (mortgage, dependents, business loans) will continue after the term ends.

3.2 Renewing the Same Term

Most insurers send a renewal notice 30–60 days before the expiration date, outlining the new premium amount. Renewal is a “no‑question” process: you simply sign and pay. This can be handy for:

People who missed the conversion window but still want coverage.
Those whose health has deteriorated (e.g., a new diagnosis) and can’t qualify for a new policy.

The catch: Because the premium is recalculated based on your current age and health, it can become a significant expense. For a 35‑year‑old who bought a 20‑year term at $30/month, the renewal at age 55 could be $150–$200/month for the same $500,000 death benefit.

3.3 Converting to Permanent

Conversion is the “golden ticket” for many. It offers:

Guaranteed insurability—you bypass any new health underwriting.
Lifetime coverage—the policy never expires as long as premiums are paid.
Cash‑value accumulation—depending on the type of permanent policy, you can borrow against it or use it as a supplemental retirement asset.

Many policies allow multiple conversions (e.g., from term → whole life, then whole life → indexed universal life) or give you a choice among several permanent products. However, the conversion premium is typically higher than the original term premium and might be comparable to buying a new permanent policy at that age. The real value lies in the insurability guarantee and the avoidance of a new medical exam.

4. How to Decide Which Path to Take

Below is a step‑by‑step decision framework you can use a few months before the policy’s expiry date.

Step 1: Re‑Assess Your Financial Landscape

Question	Why It Matters
Do you still have dependents (children, spouse, elderly parents) who rely on your income?	If yes, you likely still need life coverage.
Have you paid off major debts (mortgage, student loans, business loans)?	If all large obligations are settled, your need for high coverage may have dropped.
Have you built sufficient assets (retirement accounts, emergency fund, other insurance) to replace lost income?	A strong asset base can reduce the necessity for a large death benefit.
Do you expect future income to drop (e.g., retirement) or remain stable?	Lower future income may mean a lower coverage amount is sufficient.

Step 2: Check the Policy’s Fine Print

Conversion window: Is it still open? Some policies close the window 12–24 months before expiry.
Renewal terms: Is the renewal period the same length as the original (e.g., another 20 years) or a shorter “extended term” (often 10–15 years)?
Premium escalation clause: Some carriers require an annual increase even during the original term (rare but possible).

Step 3: Get Quotes

Renewal quote: Request a written renewal premium from your insurer.
Conversion quote: Ask for the cost of each permanent product you can convert into.
New term quote: Even if you plan to let it lapse, compare the cost of buying a brand‑new term policy at your age. This helps you gauge how “expensive” renewal truly is.

Step 4: Run the Numbers

Create a simple spreadsheet:

Option	Death Benefit	Annual Premium	Total Cost (next 10 years)	Cash Value (if any)	Pros	Cons
Let lapse	$0	$0	$0	N/A	No cost	No protection
Renew 20‑yr term	$500k	$2,400	$24,000	N/A	Same benefit, no new underwriting	Premium up 5‑7×
Convert to Whole Life	$500k	$3,600	$36,000	$70,000 (approx.)	Lifetime coverage, cash value	Highest premium
New 20‑yr term (age 55)	$500k	$2,800	$28,000	N/A	Fresh policy, potentially lower premium than renewal (depends)	New health underwriting needed

(Numbers are illustrative; actual rates vary.)

Step 5: Make the Decision & Act

If you choose renewal or conversion, complete the paperwork before the deadline. Most insurers require a signed form and the first premium payment to lock in the new rates.
If you let it lapse, consider adding a rider (e.g., a “return of premium” rider) on a new policy if you want a safety net.

5. Common Mistakes to Avoid

Mistake	Why It’s Risky	How to Prevent It
Waiting until the last day to act	You might miss the conversion window or the renewal notice could be delayed.	Set a calendar reminder 90 days before expiry.
Assuming the renewal premium will be the same	Premiums are age‑based; they can jump dramatically.	Request the renewal quote early and compare it to a fresh term policy.
Skipping the medical exam for a new policy	You might be denied or charged a high rating due to recent health changes.	If your health has declined, a conversion (no medical) is usually cheaper than a new policy.
Choosing a higher death benefit than needed	Over‑insuring drives up premiums unnecessarily.	Re‑calculate the required benefit based on current debts, future education costs, and income replacement.
Neglecting to update beneficiaries	Even if you renew, the original beneficiaries might no longer be appropriate.	Review and update the beneficiary designations at renewal or conversion.

6. Frequently Asked Questions (FAQ)

Q1: Can I renew my term policy for a shorter period?
A: Yes. Some insurers offer “extended term” options where you can renew for 5, 10, or 15 years instead of the original length. The premium will reflect the new term and your age.

Q2: What if I miss the conversion window?
A: You’ll have to either renew the term (paying the higher rate) or apply for a brand‑new policy, which may involve a medical exam and potential rating.

Q3: Does a conversion guarantee the same death benefit?
A: Most conversions let you keep the original face amount, but some carriers allow you to increase it (usually for an additional premium). Check the policy’s conversion clause.

Q4: Are there tax implications when a term expires?
A: No. Since term policies have no cash value, there are no tax events upon expiration. However, if you convert to a permanent policy, the cash value growth is tax‑deferred, and withdrawals may be subject to tax.

Q5: Can I keep the same policy number after conversion?
A: Typically, the insurer issues a new policy number for the permanent product, but the original term policy is considered “closed” on the expiration date.

7. Real‑World Example: Sarah’s Journey

Profile:

Age: 38
Original Policy: 20‑year term, $750,000 death benefit, $28/month, purchased at age 30.
Current Situation (age 48): Two children (ages 12 and 9), mortgage paid off, still owes $120,000 in student loans, and has $250,000 in retirement savings.

Decision Process:

Re‑assessment: Sarah still needs coverage for her children’s education and to protect her spouse’s income.
Policy Review: Conversion window closes in 6 months; renewal premium is quoted at $140/month.
Quotes:

Renewal: $140/month for another 20‑year term.
Conversion to Whole Life: $215/month, cash value projected at $45,000 after 10 years.
New Term (age 48): $150/month for 20 years (higher because of age).

Cost Comparison (10‑year horizon):

Renewal: $16,800
Conversion: $25,800 (plus cash value)
New Term: $18,000

Decision: Sarah opts for conversion. Although the premium is higher, she values the lifetime protection and the cash‑value element for future emergency needs. She also appreciates not having to undergo a medical exam because she’s recently diagnosed with a manageable condition.

Outcome: Sarah now has a permanent policy that will stay in force for life, a modest cash reserve, and peace of mind that her family remains protected regardless of future health changes.

8. Takeaway Checklist – What to Do Before Your Term Ends

Timeline	Action
12–9 months before expiry	Review your current financial needs; locate the policy’s conversion and renewal clauses.
6–4 months before expiry	Contact your insurer for renewal and conversion quotes; ask about any new riders you might want.
3 months before expiry	Compare the quotes against a fresh term policy; run the numbers in a spreadsheet.
2 months before expiry	Decide on your path (let lapse, renew, or convert).
1 month before expiry	Complete paperwork, sign forms, and make the first premium payment for the chosen option.
Immediately after expiry	Update your beneficiary designations, and store the new policy documents in a safe, accessible place.

9. Final Thoughts

Term life insurance is a powerful, cost‑effective way to protect the people who depend on you as long as you understand what happens when the clock stops ticking. Whether you let the policy lapse, renew at a higher premium, or convert to a permanent product, each choice carries trade‑offs between cost, health underwriting, and long‑term financial security.

The key is proactive planning: review your needs, read the fine print, and act well before the expiration date. By doing so, you’ll avoid being caught off‑guard by a sudden loss of coverage and ensure that the protection you paid for continues to serve its purpose whether that’s providing a safety net for your family today or building a lifelong financial asset for tomorrow.