Term life insurance expiring: 3 paths to weigh before lapse

One in five Americans is caring for a family member while a 20-year term life policy nears expiration, according to Northwestern Mutual's Planning & Progress Study.

"The clients most exposed to this timing mismatch usually aren't the ones who think of themselves as underinsured," Gina Cimineri, a wealth management adviser at Northwestern Mutual and founder of Take Two Financial, said. "They may have purchased exactly the right coverage for the season of life they were in."

Many caregivers are making financial trade-offs — cutting spending, pulling from savings or taking on debt — in the same decade their original coverage ends. Term life insurance is relatively inexpensive because it's temporary, with premiums reflecting age and health at purchase. Replacement coverage at 55 instead of 35 costs more for the same death benefit, and health changes can limit what applicants qualify for.

The stakes extend beyond the policy itself. A historic $124 trillion intergenerational wealth transfer is underway in the U.S., and an expiring policy is a natural prompt to review beneficiary designations against current estate plans.

Three paths for an expiring policy

The right approach depends on health, budget and what the policyholder is trying to protect against. Converting existing coverage to a permanent policy without new medical underwriting may be valuable for those whose health has changed, though conversion windows are typically limited to a specific age. Adding smaller coverage on top can address a narrower current gap, such as a parent's care needs or a few remaining years of a child's dependency. Starting over with today's numbers often produces a more accurate target than the coverage amount that made sense at 35.

Estate planning review

An expiring policy is a natural prompt to check beneficiary designations that many haven't reviewed in years. A former spouse listed as beneficiary, a minor child who'd receive a lump sum before ready to manage it, or an estate named by default can create complications that a trust or staggered distribution may help address. Some permanent policies build cash value over time, and their death benefit can help with estate taxes, equalizing inheritances or charitable giving.

For wealthier individuals, coverage tied to a business loan, buy-sell agreement or key-person planning can also expire or lapse, often carrying higher stakes. An expiring policy is a reasonable prompt to address postponed estate planning decisions such as gifting assets into a trust or updating succession plans.

Before the policy lapses

Policyholders should pull their policy documents and check whether a conversion option exists and by what date it must be exercised. They should take an honest inventory of who currently depends on their income, check beneficiary designations against their current estate plan, and talk to a financial adviser before the term expires — options narrow once the policy has ended.

Figures cited reflect the Northwestern Mutual Planning & Progress Study and current policy terms; readers should verify details against their own policy documents and the latest official guidance. The goal is not to perfectly predict every change life may bring. It's to revisit the plan often enough that it can evolve alongside the people and priorities that matter most. An expiring policy is simply the reminder that it's time to make sure the financial plan has changed along with life.

This article is for informational reference only and does not constitute professional advice.