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What Is Renewable Term Life Insurance?

52% of Americans have some form of life insurance. Of those who don’t have insurance, a large percentage would agree with the importance of getting life insurance. 

They recognize that life insurance protects their loved ones if they die. Yet, they still don’t seek out life insurance. 

The truth is that life insurance can feel depressing and overwhelming. With many different options, it’s hard to know what to get. 

Doing your research is essential when considering any type of insurance. It’s important to know what you’re buying and know if it’s the right fit for you and your family.

Read on to learn more about renewable term life insurance and discover whether or not it’s the right fit for you.

What Is Term Life Insurance?

Before explaining renewable term life insurance, you need to understand term life insurance. Typically, when someone is deciding on life insurance, they’re choosing between term life and permanent life insurance. 

Term life insurance is pretty simple to understand. You buy a term insurance policy for a set term and pay the premiums during this term. If the policyholder dies during the term, there’s a death benefit paid to the beneficiaries on the policy.

Term life insurance doesn’t offer the additional benefits that permanent insurance offers, like a saving component or borrowing against the policy in the future. It’s also typically much less costly than permanent insurance. More on cost later. 

Most term life insurance policies are for terms of either 10, 15, or 20-year terms. This means you pay premiums during this time period to be covered with the life insurance policy. If you stop paying premiums, you won’t have a policy. 

But what happens at the end of the predetermined term?

There are three things that can happen at the end of a term life insurance policy if the policyholder is still living. 

It could be that the policyholder feels they no longer need life insurance coverage, and they let the policy expire. This means they would no longer have life insurance coverage, and should they die after the term; no death benefit would be paid. 

The second option is that some life insurance companies will allow the term insurance to be converted to a permanent life insurance policy. You would want to check into the possibility of this option when you sign up for the term insurance policy since not all term insurance offers this option. 

Finally, many term life insurance policies offer the option to renew the policy. This is what’s called renewable term life insurance. 

What Is Renewable Term Life Insurance?

A renewable term life insurance policy is like what it sounds like. It allows the policyholder of a term life insurance policy to renew their term insurance if the term comes to an end. 

When you buy life insurance, you want to consider how much insurance you will need. There are a variety of methods for calculating your insurance needs. Most consider your current income level and debt. 

Calculations usually include figuring out if you have a mortgage to cover and for how long. You want to consider the age of any children, and how long it’s likely they’d need your support. You also want to factor in college expenses. 

Most people will do the calculations and consider how long they might have a mortgage or have dependent children and base their term insurance on those calculations. 

But life is unpredictable, and often things change. It’s not surprising for a policyholder to get to the end of a term in their term life insurance and realize they want or need life insurance for a more extended period of time. 

How Does Renewable Term Insurance Work?

Understanding renewable term life insurance and how it works is important. First, it’s essential to check at the outset if the term life insurance you’re buying has a renewable clause in it. 

Not all term insurance policies allow you to renew them. You may find the policies that do allow for a renewal cost slightly more than a standard term life insurance policy.

If you get to the end of a term policy and wish to renew, most policies allow you to renew a year at a time. They usually don’t require you to undergo a new medical exam, which is a significant advantage of this type of policy. 

However, because life insurance rates are often based in part on your age, when you go to renew your rate is likely to change.

The good news for someone who holds a renewable term life insurance policy is that the insurance can’t deny a renewal. If it is part of the contract of your policy, you can renew it as many times as you want. 

Knowing that the rate goes up with age, you really want to spend time evaluating what term will be best for you when you get the term insurance to begin with. Get a term that goes well past when you suspect you’ll need it. You’ll lock in a lower rate than you might get if you renew it over and over again.

Benefits of Renewable Term Life Policies

A renewable term life insurance policy is desirable for many reasons. The simple reality is that life is unpredictable which makes buying life insurance a bit of a guessing game.

You can do your best to predict your future needs for life insurance. But it’s unpredictable and always changing which means your life insurance needs may change with time. 

When you have a clause in your term life insurance policy that allows you to renew your policy you have the flexibility and insurance you need for the unexpected.

While doing a renewal may increase your rate because you’re older; it’s likely still more cost-effective than getting a completely new policy. Even the option to go to a permanent life insurance plan may be more costly than simply doing the renewal. 

Applying for life insurance can require some steps. You may need a health screening and even a health exam. The insurance company will want to know a great deal about your lifestyle and work life before quoting a rate. 

When you have the option of a renewal, you don’t have to begin the application process all over. You also can avoid a new medical exam. Remember, a lot can change in your health over 15 or 20 years, which can greatly impact the rate you get quoted from the insurance company. 

While your rate may increase with renewable insurance, there won’t be a health exam. Nor can the insurance company opt to deny you a renewal because of your current health status. 

Considerations for Renewable Term Life Policies? 

There are a few other reasons to consider a renewable term life insurance policy. 

One rate consideration for an insurance company is if you’re currently a smoker. You can be assured that your rate for insurance will be higher if you’re a smoker. 

Having said that, you could seek a short-term renewable term policy, then quit smoking. When you go back to the insurance company as a nonsmoker, your rate will improve. 

This type of policy can also be beneficial in the short term if you expect your life situation to change and get you access to other insurance options. Maybe you’re a student who expects to graduate soon. Maybe you’re starting a new job soon that might give you more income to afford additional insurance. 

A renewable term life insurance policy would allow you to get an affordable life insurance policy until you have more income or your situation changes to get a more permanent policy.

Consider Costs

When you consider life insurance, cost is always a factor. In fact, it’s likely the reason so many people don’t have life insurance. No matter the type of life insurance policy, your policy will be based on several factors:

  • Your age
  • Gender
  • Smoker?
  • Your occupation
  • Health status

Then the rate will depend on the type of the policy you’re buying. Term policies are usually cheaper than permanent policies. Renewable term insurance, because it involves more risk for the insurer, will be slightly higher than regular term insurance. 

The question becomes how much rates are likely to increase once you go to renewals. Is it smarter to convert to a permanent policy or continue to seek renewals. 

Renewable Term Life Insurance for You

Use this renewable term life insurance guide to help you decide if this type of policy is right for you. 

If you have questions about renewable term life insurance or need more information on life insurance options, we can help. Contact us today to get started finding the right life insurance policy to meet your needs.