Do You Get Money Back on Term Life Insurance?

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  • Do you get money back on term life insurance? In most cases, the answer is no. Explore traditional term life policies and exceptions to the no-money-back rule.

Because many people with term life insurance outlive their coverage, potential purchasers may wonder if you can get money back once the policy ends. In most situations, the answer is no. To understand why, it’s helpful to take a closer look at what term life insurance is, who benefits from this type of coverage and whether there are exceptions to the no-money-back rule.

What Is Term Life Insurance?

Term life insurance is a type of coverage that provides protection for a prespecified period of time, which is selected when the policy is purchased. Unless you buy a yearly renewable policy, which includes a renewal option at the end of each year, a policy's lifespan generally falls between 10 and 30 years, with plans sold in five-year increments. If the insured dies during the timeframe specified in the plan’s contract, the policy pays the promised death benefit to the designated beneficiaries. Unlike many permanent policies, term life plans don’t include a savings component, so they typically have no value beyond the death benefit.

Who May Benefit From Term Life Insurance?

Because term life insurance is only effective for a specific period of time, it’s often a less expensive option for individuals who don’t need lifetime coverage. Those who may benefit from this type of plan include:

  • Individuals who expect to build enough wealth to provide for families after their death, but who want protection for the short-term
  • Parents or guardians of minors who want to ensure financial security to care for children until they reach adulthood
  • People who have specific debts or other limited-term financial needs, such as mortgages, personal loans or college tuition payments
  • New business owners who've incurred company-related expenses

A term plan that can later be converted to permanent may also be a viable solution for an individual who wants or needs life insurance coverage but who can't currently afford a costlier permanent policy. 

What happens If You Outlive Your Term Life Insurance?

When you purchase a term life insurance policy, you’ll select or agree to contractual terms, including the amount and duration of coverage. As part of the purchase, you'll undergo an underwriting process, which includes an assessment of your risk factors and possibly a medical exam. Once underwriting is complete, you'll be assessed premiums for your plan, which must be paid as agreed-upon or your policy will terminate. If the insured individual dies while the coverage is in effect, a death benefit is paid based on the terms of the contract. If the insured individual outlives the policy, it will terminate on the contractually specified date.

Because term plans only provide coverage for a limited period of time, many individuals outlive their policies. For most of those people, the plan simply expires. You no longer pay premiums, and the benefits are lost. Your beneficiaries will no longer receive a death benefit if you die.

Some consumers may find that they need additional coverage once their term plan is up. Unfortunately, if your plan has already expired, you may simply have to purchase a new policy, which will include a second underwriting process and a new risk assignment. However, if your plan is set to expire, you may have several options:

  • Renewal: Depending on the initial contract terms, some policies are renewable, letting you add to the duration of your coverage prior to its expiration without having to complete a second underwriting process or undergo a reassignment of risk.
  • Conversion: Some term life insurance plans may be converted to permanent policies without additional underwriting steps. Terms for conversion are typically outlined in the policy's contract and may include specific conversion periods or percentages.

Do You Get Money Back on Term Life Insurance?

No. In most cases, you can’t get money back from term life insurance. These policies are designed to provide limited coverage and are typically less costly than permanent life plans, which may have a savings component. Because of this, they don't provide refunds of premiums.

However, there are two major exceptions to the no-money-back rule:

  • Return-of-premium policies: Return-of-premium term life insurance policies are specialty plans that offer a refund of all policy premiums to policyholders if the insured outlives the specified term. Depending on the contractual terms and conditions, that may mean a net cost of zero for some plans, and the refunded premiums are tax-free. However, return-of-premium policies are generally much more expensive than traditional term policies, making them unaffordable for many consumers.
  • Return-of-premium riders: Return-of-premium riders are similar to return-of-premium policies in that they refund policy premiums to policyholders if the insured outlives the plan’s term. However, a return-of-premium rider is essentially an add-on that may be tacked on to a standard term policy at the time of purchase. These riders are often prohibitively costly.

Should You Talk With a Professional?

If your term life insurance policy is nearing its expiration date and you aren’t sure what you should do, it may be helpful to speak with an industry professional. An insurance agent or experienced financial consultant can help you explore options that may be available for renewing or converting your coverage so that your family stays protected. An industry expert can also help you understand your policy's contractual terms so you can find out if you’re eligible to get money back, and they can advise you how to proceed if you are.