This is a question that comes up when people are looking at term life insurance policies. What happens if I live past the renewal or expiry date of the policy? Do I get anything back?
First off, let’s talk about risk management. Why do you have insurance? It is there because there is some level of financial risk that you don’t want to or aren’t capable of handling on your own. You pay an insurance company to takes on that risk for you.
Now let’s look at the way that a life insurance company figures out the premiums for your term life insurance policy. They have all kinds of data available to them that provide them with life expectancy data. They use this data to calculate how much it will cost to shift the risk of a cash payout should you die in any given year. With term insurance you pay what equates to the cost of the pure risk. What this means is that the cost to transfer the risk to the insurer is calculated and applied over the term (for example 10 years or 20 years) and that is what you pay.
Sometimes a comparison makes things easier to understand. If you own a home or drive a car it is required that you have insurance on it. There is a cost associated with this every year that covers the risk associated with something happening to your property. At the end of each year do you get money back because your house didn’t burn down or you didn’t crash your car? The answer is no. The reason is that you pay an insurance company to take on the financial risk of something catastrophic happening. The premium (cost of the policy) is the cost of transferring that risk. If the insurer returned the money they received if policies go unused they would not be in business for long. If you feel like receiving something back at the end of the policy is important to you then there are options for types of coverage that provide this.
If you feel like receiving money back at the end of your life insurance policy (or during the policy), it is important to know that there are actually other types of life insurance products which provide this feature. This type of life insurance is called permanent life insurance and there are two main types of permanent life insurance products- whole life insurance and universal life insurance. These types of life insurance products cost more than term life insurance because of the added features that they provide. We recommend speaking with one of our experience life insurance brokers to determine what type of life insurance is right for you.
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