What Happens at the End of Term Life Insurance?

What happens at the end of a term life insurance policy?

Term life insurance products are designed to be active for a set period of time. Because term life insurance is only temporary, the coverage ends without a payout if you’re still alive when the term is over. 

When term life insurance expires:

Be aware that many term policies in Canada are set to auto-renew, but this isn’t true across the board. Your contract will state whether your policy has “guaranteed renewal” or “automatic renewal.”

When a term policy is about to end — and you still have insurance needs — you can reapply, renew or convert: 

• Still need term coverage? Apply for a new one or renew with your existing insurer.
• Need a permanent policy? Convert your expiring term policy to a permanent one.

Note: If you choose to renew your life insurance coverage, note that your policy will not automatically continue at the same rate. Your new price will be higher, since insurance premiums are based on your current age at the time of renewal.

Your 4 options when your term life insurance ends

When your term life insurance policy ends, it’s time to make a choice; and there are four good options, depending on your situation. 

If your loved ones are financially secure, then it’s perfectly normal to allow your term coverage to lapse! Otherwise, it’s time to shop around for life insurance.

Option #1: Let the policy expire

You can choose to let your term policy expire at the end of your coverage period — just know that you may need to actively inform your insurer that you do not wish to renew, as renewal is automatic with some policies.

It is perfectly sensible to let term coverage expire if:

Many people no longer need insurance at this stage, once financial obligations have lessened and income replacement is less critical to the family’s wellbeing. This is a good sign that you picked the right term policy to begin with!

Of course, life happens — and sometimes you still need temporary coverage.

“Many people think life insurance is just a payout when you die. In reality, one of the most important features is how premiums are locked in for a set term. Once that term ends, renewal rates can jump dramatically. Understanding this helps you choose the right amount and term length up front, avoiding surprises later.” — Luke Robar, Life Insurance Advisor

Option #2 — Reapply for a new term policy

You can choose to reapply for a brand new term life insurance policy (with the same company or a different one) at the end of your existing term. You may still have to actively inform your insurer that you do not wish to renew, if your old policy includes an automatic renewal clause.

Reapplying for a new policy is the best option for people who still need temporary coverage and who are still healthy.

You may still need term insurance if:

Reapplying is often cheaper than renewing, if you’re still healthy. When you reapply, you will go through new underwriting to assess your current health and risks so the insurer can price your policy accurately. When you renew, you do not submit additional health information so the insurer sets very high premiums to account for unknown risks.

You’ll choose a specific period for which you need coverage, and then pay for a brand new term policy that will pay out a tax-free death benefit if you pass away during the term. Expect the life insurance quote to be higher, even if you select the same life insurance options — that’s simply because you’re older.

Option #3: Renew your term life insurance

You can choose to renew your term coverage with the same company at the end of your term policy. You’ll receive a new term policy that’s basically a continuation of your original policy, just with a new premium.

Renewing is the best option for people who still need temporary coverage and whose health status has changed.

There are two types of renewable terms:

• Annual Renewable Term (ART): Renews year by year, with premiums rising every year based on your age. This is the most common default.
• Short fixed-term renewal: Renews for a set period of time (often 5 years) with a new, set premium. This is less common.

It makes sense to renew (instead of reapply) if people are still relying on you but your health has declined and you might be denied if you reapply. 

As with any term life insurance plan, if you do not have dependents or major financial obligations, then you may not need term coverage any longer. 

Option #4: Convert to permanent life insurance

You can choose to convert an expiring term policy to a permanent life insurance plan, if your term policy is convertible, like whole life insurance or universal life.

There are limits! For example, you may only be allowed to convert until a certain age (65 or 70) or until a certain policy anniversary, depending on the life insurance company.

Conversion is a great option for people who want to lock in lifetime coverage and whose health or age might prevent them from qualifying for new insurance.

Conversion means no new medical exams but a new, higher premium (based on your age) that typically stays level for life.

It makes sense to convert to permanent life insurance policies if:

Some term policies allow partial conversion. This is a smart strategy where you convert only part of your term coverage into a permanent policy.

For example, you might convert $250,000 of a $1M term policy into a whole life policy, locking in permanent coverage at a low rate while keeping the rest of your temporary coverage at an affordable price, too.

Check your policy contract carefully to understand how your current agreement treats conversion options.

How to decide which option is right for you at the end of your term

When choosing whether to renew, reapply, convert, or let your coverage expire, the smartest thing to do is revisit your family’s financial situation — and, most importantly, make an intentional choice about the type of life insurance that works for you.

Your decision should be based on:

It’s okay to let your policy term expire, no matter your age, as long as your financial obligations and dependents are secure.

Did you know?

25% of Canadians are not confident their family would be financially secure if they passed away unexpectedly.

But if you still need a policy because of persistent debts or unanticipated financial dependency from loved ones, the best approach is to start with term coverage: 

• Are your coverage needs temporary? Reapply if you’re healthy, renew if you’re not.

• Are your coverage needs permanent? Convert partially to permanent based on your situation. 

80% of Canadians with life insurance feel confident in their family’s financial security.

Whatever type of coverage you choose, it’s wise to continually revisit your plans to ensure you can meet your family’s financial protection needs. Be proactive, and don’t default to whatever the company selects for you.

FAQs: What happens at the end of term life insurance?