What Is Renewable Term Insurance?
A renewable term is a feature in a term insurance policy that allows the policyholder to extend the coverage term for a specified period without needing to re-qualify for new coverage. This extension is contingent on current premium payments being up to date and the payment of a renewal premium.
How Renewable Term Insurance Works
In a life insurance contract, a renewable term clause can be highly beneficial because future health circumstances are unpredictable. Although the initial premiums for a policy with a renewable term clause are generally higher than those without one (to compensate the insurance company for the increased risk), this feature is often in the best interest of the policyholder.
Renewability is crucial because many policyholders will want to renew their policy once the term ends, especially if their health has deteriorated, making them uninsurable. Renewability allows a policyholder to maintain their current coverage, albeit usually at a higher premium, without having to undergo a new qualification process.
Having a renewable term on a term life insurance policy provides peace of mind against worst-case scenarios. For example, an annual renewable term (ART) life policy initially covers one year and renews annually. These policies offer guaranteed insurability for a set number of years and a level death benefit. Premiums are reassessed annually, increasing as the policyholder ages. ART policies are particularly suitable for those needing short-term life insurance quickly.
Renewable Term Life vs. Convertible Term Life
Renewable term life insurance is often confused with convertible term life insurance. While renewable term life insurance allows you to extend your current coverage, convertible term life insurance allows you to convert your term life coverage to whole life coverage at any point during the term or before your 70th birthday, whichever comes first.
Both types of insurance ensure that the insured does not have to re-qualify or undergo additional screening, regardless of their health. However, renewable term life insurance cannot be converted to whole life insurance, whereas convertible term life insurance can.
Key Takeaways
-Renewable term: A clause in many term life insurance policies that allows for renewal without new underwriting.
-Extended coverage: Allows for coverage extension even if the insured's health has declined, with new premiums reflecting their older age.
-Renewal limit: Often includes a limit on the age until which renewal is possible, such as age 70.
This revised explanation clarifies the concept of renewable term insurance and distinguishes it from convertible term insurance, ensuring that the information is more accessible and comprehensible.
