Term life insurance is an excellent tool for personal and business related life insurance needs, but what if you outlive your term life insurance? Term insurance is a cost effective way to get a large amount of death benefit coverage, particularly early in your life to help beneficiaries in the event that you die unexpectedly. An important thing to remember with term life insurance is that these policies come with an expiry date. The policies will have an age outlined in the original life insurance policy contract that the coverage terminates at. Often this happens on the policy anniversary in the year that you turn 85 years of age.
What happens if you are 85 years old and have owned and paid for a term life insurance policy since you were 45 years old? First off, Congratulations! You lived longer than you were expected to… That’s a good thing. The downside is that you have now lived too long for your life insurance policy to continue covering you. If you died tomorrow, there is no pay out from the policy. Let’s take a step back thought and remember why you had the coverage in the first place though.
Risk management is an idea that comes up again and again when dealing with life insurance. There are different ways to manage risk. One of them is to transfer the risk to someone else. With term life insurance you have done exactly that. You paid a premium to the life insurance company so that they assumed the risk of paying out the death benefit if something happened to you. The conditions of the risk transfer were laid out in the policy and one of them was that there was an end date. If you had died while the coverage was in force, the death benefit would have been paid which provides the money that your beneficiary needed. The downside is what had to happen to you for them to get the money.
I often come back to an analogy that compares the idea to car insurance. You pay the premium for your car insurance every year.. When you don’t have your car anymore you have outlived the need for car insurance. You don’t get anything back from the insurer. What you paid them was the cost associated with you not being personally at risk in the event that something bad happened.
There is a hard cost associated with transferring risk to someone else. If you outlive the time frame when the transfer applies, it’s not a bad thing. You’re still alive, that’s a great thing. Imagine the alternative. Let’s hope we all outlive our term life insurance policies.