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Does Life Insurance Expire?

What ends by design, what does not, and why a permanent policy can still stop

The question usually has a specific worry sitting behind it. Somebody is paying for coverage and wants to know whether it will still be there when it is needed, or whether there is a date after which the money stops buying anything. The honest answer is that it depends on which of two broad kinds of policy is in the folder. One is built to end. The other is built not to, and can still end for a different reason.

Two kinds of policy, two meanings of the word

Term insurance covers a stated period. It is priced on the expectation that it will most likely end without paying anything, which is why a given amount of coverage costs comparatively little. When the period is finished, the coverage is finished with it.

Permanent insurance is designed to stay in force for the whole of the insured person's life, and it normally builds an internal value along the way. The same death benefit costs a great deal more, because the insurance company expects to pay a claim eventually rather than possibly.

So the word expire means something fixed for one and something conditional for the other. Nothing on this page can tell you which you own. The first pages of the contract will, and so will the insurance company if the owner asks.

A term policy has two dates, not one

The confusion here is almost universal, and it costs people money. One date is the end of the period for which the premium was guaranteed to stay level. The other is the date the contract terminates, written as a calendar date or as an age the insured reaches.

Between those two dates, some contracts keep coverage going from one year to the next at a premium recalculated against the insured's age at that point, which climbs steeply. Others stop dead at the end of the level period and nothing follows. Which of those two things your policy does is a contract question, and the wording is on the schedule pages.

What happens at the end of a level term period

Where the contract renews, bills keep arriving and the coverage stays in force, at a price that is seldom worth paying for long. Where the contract simply ends, the coverage stops, nothing is returned, and the premiums already paid are not refunded. That is not a penalty being applied to you. It is what term insurance is and how it is priced.

There is a third route written into many term contracts, a right to swap the coverage into a permanent policy issued by the same company without a fresh round of health questions. Where it exists it is time limited, and the limit tends to fall well before the coverage does. Put that question to the insurance company in writing, and put it early.

Why a permanent policy can still end

A permanent policy is not a promise that runs by itself. It runs on money, and it can run out.

Whole life is usually built around a fixed premium intended to carry the contract for life if it is paid as scheduled. Stop paying and the policy falls back on whatever value has accumulated inside it, which may hold the coverage up for a while, convert it into a smaller amount that needs no further premiums, or come back to the owner as cash. Those alternatives are written into the contract rather than decided case by case.

Universal life is more exposed. Charges for the underlying insurance cost, plus expenses, come out of the account value on a regular cycle, and those charges rise as the insured gets older. If the payments going in were modest, or stopped at some point, or if the interest credited came in lower than the figures assumed when the policy was sold, the value drains. Once it is gone the contract ends, sometimes many years after the last conversation anybody had about it.

Loans do the same thing more quietly. Money borrowed against cash value accrues interest, and that interest is charged against the same value holding the contract up. A policy carrying a large loan can end while it still looks solid to somebody glancing at a statement.

Many permanent contracts also carry a maturity date, an age at which the policy concludes by its own terms. Whether yours has one, and what it does when it arrives, is in the contract.

How to find out which situation you are in

Ask the insurance company, in writing, for four things. The type of policy. The date coverage terminates under its terms. How long the current premium is guaranteed to hold. And if the policy is a permanent one, an in force illustration showing how long the current value and the current payments are projected to keep it going.

That last document answers the real question, and most owners have never seen one. It is available on request to whoever owns the policy.

Where people get this wrong

• Treating the premium guarantee as the end of coverage. These are two separate dates, often a long way apart, and the letter about one is not a statement about the other.
• Assuming permanent means untouchable. A permanent policy still needs enough money inside it, and the amount it needs is not fixed for all time.
• Reading a policy loan as spare money. Interest keeps building against the value that keeps the contract alive, so borrowing shortens the life of the policy.
• Trusting the illustration from the sale. The projection made years ago rested on assumptions. A current one is a different document and often tells a different story.
• Letting a term policy run out without asking what else it holds. Provisions with their own deadlines are worth checking well before the final bill.

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