Term life insurance provides affordable coverage for a set period of time. It’s an ideal option for many people who need life insurance, especially when they’re young and presumably healthy. But at what age should you stop paying for term life insurance? There’s no one-size-fits-all answer. When it makes sense to drop term life depends on your individual circumstances.
What is term life insurance?
Term life insurance provides death benefit coverage for a defined period of time, usually 10, 20 or 30 years. It’s called “term” insurance because coverage is only in force for the term of the policy. Term life premiums are generally lower than permanent forms of life insurance because term doesn’t have cash value that builds over time.
Here are some key characteristics of term life insurance:
- Provides pure death benefit protection
- Typically the most affordable form of life insurance
- Coverage period defines the term, such as 10 or 20 years
- Premiums increase with age
- No cash value accumulation
Term life is a cost-effective way to meet temporary needs for life insurance. Common reasons to buy term insurance include:
- Protecting income to support young children
- Covering a mortgage
- Providing income to pay off debt
- Leaving an inheritance
- Funding college costs
- Supplementing retirement income
When to stop term life insurance
There are a few key times when you may want to re-evaluate the need for term life insurance.
End of the term
The most obvious time to stop paying premiums for term life is at the end of the term period. For example, if you have a 20-year policy, it makes sense to stop paying premiums after 20 years when the coverage expires.
However, term policies often allow you to renew for an additional period without a medical exam. You’ll pay a higher premium based on your attained age at renewal. Carefully consider whether your need for coverage will extend beyond the initial term length. If so, renewing for a new term may make more sense than purchasing a new policy.
When the need for coverage ends
The main reason for purchasing term life insurance is covering financial obligations and expenses that will disappear over time. Once the need for coverage goes away, you may no longer need to keep paying premiums. Common scenarios include:
- Paying off a mortgage: Many people buy term life insurance to cover the balance of their home loan. Once the mortgage is paid off, the need for coverage may disappear.
- Covering child care costs: Parents often get term life insurance to pay for child care expenses until their kids are grown. When the kids are financially independent, the coverage is less necessary.
- Replacing lost income: If you have term life insurance to cover household expenses, your need for insurance may decrease as retirement savings grow.
Carefully consider how much coverage is still necessary once major financial obligations like these are gone. You may be able to reduce the death benefit or eliminate coverage entirely.
When premiums get too expensive
One disadvantage of term life insurance is that premiums increase each time the policy renews. Premiums get higher as you age due to the increased risk of death. For some people, premiums eventually become prohibitively expensive.
Once premiums reach a certain level, you may find better uses for the money than paying for term life insurance. Investing the funds can help grow your nest egg. Or you may prefer spending it in retirement.
Compare the cost of coverage to your budget and overall financial situation. Weigh whether it makes sense to continue paying higher premiums or if you would be better off self-insuring.
Factors to consider
When evaluating whether to stop paying for term life insurance, think about these key factors:
Age
Your age is one of the biggest considerations. The risk of death increases significantly as you get older. Term life insurance pricing reflects mortality rates by age. Premiums will be lowest in your 20s and 30s. Rates increase dramatically after age 50 and especially over 70.
If you’re still in good health in your 60s or early 70s, you may get better pricing by applying for a new term policy rather than renewing an existing one. Insurers base renewal rates on the age you purchased coverage. Buying a new policy means they’ll use current age-based rates.
Income
How much income do you need to replace if you died today? Look at your current salary, pension, social security or other sources of household income. If your spouse or partner relies on your income, estimate how much they would need.
Compare the total income that needs to be replaced to your current life insurance benefit. If you no longer need such a high death benefit due to reduced income in retirement, you may be able to reduce coverage.
Debt
Calculate any debts that life insurance should cover in the event of your death. This may include a mortgage, car loans, student loans, credit cards and other outstanding balances. If you’ve paid off major debts, you likely need less coverage.
Also factor in expenses the death benefit should cover like funeral costs. Ideally the life insurance payout will be enough to pay off final debts so your beneficiaries receive the payout tax-free.
Assets
Review assets your beneficiaries would receive upon your death. For example, retirement accounts, investments and bank accounts would transfer outside of probate in most cases. If you have substantial assets, there may be less need for a large life insurance benefit.
Dependents
Consider who is financially dependent on you. If you have young children still at home, it’s critical to maintain coverage to pay for their care. Like income, the need for life insurance drops once dependents become financially independent.
If you’re single with no children, you likely need lower coverage. Couples with dual incomes may only need enough for temporary replacement income. Look at total household income and expenses rather than just your individual earnings and obligations.
Health changes
If your health declines as you age, life insurance becomes more expensive. Serious illnesses like cancer or heart disease can make qualify for coverage difficult. In that case, keeping an existing policy with locked-in pricing may make sense.
Weigh the cost of maintaining coverage versus potential new conditions that could impact insurability. Try getting quotes for new coverage and compare to your renewal premiums.
Budget
Compare the cost of life insurance to your overall budget, especially in retirement. If premiums are only 2-3% of your retirement income, keeping coverage may be affordable. But if you’re on a fixed income, paying 10% or more for term insurance may not make financial sense.
Evaluate all your retirement expenses and sources of income. Make an informed decision on what you can comfortably afford to spend on maintaining coverage.
When to convert term life insurance
Rather than dropping term life insurance altogether, you may want to consider converting part or all of it to permanent coverage. Here are some common scenarios for converting term to whole life, variable life or universal life:
- Wanting lifetime coverage versus a set term
- Need coverage beyond renewal age limits, often to age 95
- Locking in lower premiums for life
- Wanting to build cash value in the policy
- Using the policy for estate planning purposes
Converting term policies becomes more expensive the older you are. It often makes sense to convert before age 60 or 65 while premiums are still affordable. Many term life policies include an option to convert to permanent coverage with no medical exam during the initial term.
The new policy will be priced based on your age at the time you convert coverage. Converting early on locks in lower premiums. If you develop any health conditions, you still qualify as long as the term policy is in force.
Other options beyond term life insurance
Term life insurance may no longer fit your needs over time. But you still have options to provide life insurance protection other than letting coverage lapse. Consider these alternatives to continuing expensive term insurance:
Get quotes for new term life policies
Rather than accepting expensive renewal rates, shop around for new term life insurance quotes. You may find insurers that offer better pricing based on your current age and health status.
While health changes can make qualifying for life insurance harder, term policies are a purely mortality play. If you’re in reasonable health for your age, you may still get approved for a 10 or 20 year term policy at attractive rates.
Consider guaranteed universal life
A guaranteed universal life insurance policy offers permanent lifetime coverage to age 90, 95 or 100. Premiums and death benefit are guaranteed to remain level. While more expensive than term insurance initially, it can be a better value over your lifetime.
GUL policies also build cash value that you can tap if needed. This gives you more flexibility than a term life policy. Locking in guaranteed coverage when you’re younger can provide peace of mind.
Get supplemental coverage
Rather than dropping your term life policy completely, you may be able to reduce the death benefit to keep premiums affordable. A lower benefit can supplement pensions, social security income and other assets your spouse would receive.
Many term policies allow you decrease the length of the term or reduce the death benefit amount. Cutting the coverage in half or more can make a big dent in premium costs.
Consider final expense insurance
Small final expense life insurance policies can cover the costs of funeral, burial and final medical bills. Coverage amounts usually range from $5,000 to $25,000 for monthly premiums under $100.
The small benefit can ease the financial burden on your family at the time of death. While not a full replacement for income, it can be a low-cost option to cover final expenses once term life insurance ends.
Things to avoid
When deciding whether to stop paying for term life insurance, beware of these common mistakes:
Letting coverage lapse
Don’t let term life insurance coverage expire without a sound strategy in place. Know well in advance of renewal what your options are. Shop around for new quotes, modify the current policy or purchase another form of coverage you can afford.
Letting coverage lapse may save money in the short term. But trying to qualify for a new policy after a lapse can be difficult and expensive.
Overinsuring
It’s easy to overinsure when you’re young and healthy and premiums seem cheap. But holding onto a giant policy when the need has long passed just wastes money. Be honest about reevaluating how much coverage you really need at different life stages.
Underinsuring
The opposite mistake is dropping coverage too soon or reducing the benefit too drastically. Make sure you still have enough coverage to meet financial obligations to a spouse or partner. Leaving them without adequate resources can be financially devastating.
Ignoring tax implications
Carefully consider the tax consequences of changes to a life insurance policy. Reductions in death benefit or cash value withdrawals may be subject to income tax. Consult a tax advisor before modifying coverage.
Waiting too long to convert
Converting term life insurance gets considerably more expensive the older you are. Once you reach your 60s or 70s, premiums for a new permanent life policy might be prohibitive. Plan ahead and run the numbers on conversion well before renewal.
Tips for minimizing costs
To keep term life insurance affordable for as long as you need it, consider these tips:
- Lock in lower rates initially by purchasing coverage at a younger age
- Select longest term length you can comfortably commit to, often 20 or 30 years
- Try laddering multiple smaller policies instead of one large benefit
- Pay annually or semi-annually rather than monthly to save on fees
- Take advantage of employer or group life insurance while working
- Comparison shop at renewal and get quotes from multiple insurers
- Ask about any discounts for being healthy or maintaining healthy habits
- Reduce death benefit and term length if full coverage is no longer needed
Frequently asked questions
When should I stop paying premiums on my term life insurance policy?
You may want to stop paying premiums when the term expires, the need for coverage goes away, or premium costs become unaffordable. Evaluate your specific income, debt, dependents and retirement planning situation.
What happens if I stop paying term life premiums?
If you stop paying premiums, the policy will lapse and coverage will end. Try to avoid coverage lapsing unintentionally. Make an informed decision on when to stop coverage or modify the policy as needed.
Can I renew my term life policy after the term expires?
Most term life policies allow you to renew for an additional term without taking a new medical exam. Renewal premiums will be higher based on your attained age at that point.
Is it smart to convert term to permanent life insurance?
Converting term to permanent coverage can provide lifetime protection and cash value accumulation. Doing so at a younger age locks in lower premiums. But it’s also more expensive upfront than continuing term insurance.
Should I ever buy lifetime term life insurance?
Lifetime term life insurance maintains level premiums until age 100 or 120. This avoids premium increases but comes at a higher upfront cost. Guaranteed universal or whole life insurance can be a better permanent option.
The bottom line
Determining when to stop paying for term life insurance depends on your budget, health, life stage and specific insurance needs. There’s no universal age where term life no longer makes sense. Carefully evaluate your situation on an ongoing basis and make changes accordingly.
With smart planning, term life insurance can provide temporary coverage when you need it most. Making informed decisions will help ensure it stays affordable while you need protection without overpaying.
