For example, if you buy a 15 year level term life insurance policy and you die within 5 years of buying your policy, your beneficiary would receive the life insurance death benefit proceeds, usually free of federal income tax.
However, if you stopped paying the premiums on your term life insurance policy (policy lapse) and your life insurance coverage was not "In Force" when you died, there would be no pay-out of any death benefit.
Also, if you cancel (discontinue) your term life insurance policy, there would be no pay out of a death benefit upon your death.
The reasons term life insurance policies do not pay out at the end include the following:
- The insured person cancelled the life insurance policy.
- The insured stopped paying the insurance premiums for the coverage.
- The insured outlived the duration of the term life insurance policy, so the coverage expired.
- The insured did not renew the life insurance coverage when the policy expired at the end of the term.
- The insured did not tell their beneficiaries that they owned life insurance, and so no claim was ever made to get the proceeds from the term life insurance policy.
Basically, a term life policy only pays off a death benefit if the insured dies during the term of the policy.
Learn more about how a term life policy works