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Policy Types

Choosing the best term life insurance for you

Learn about renewable term life insurance vs convertible term life insurance with examples. Find out more about term life options with Protective.
When it comes to the many different types of life insurance, term life insurance may be more understood because of its simplified structure. Just like any other life insurance policy, it is designed to pay a death benefit to your beneficiaries when you die. With a term policy, you select the length of the term (typically from five to 30 years) and the amount of the death benefit that you need. If you die within the term specified in your policy*, the benefit will be paid to the person or people you have named as your beneficiaries. Also, it is sometimes possible to include two important types of policy choices - renewable and convertible. 

What is renewable term life insurance?

A renewable term is a clause in a term insurance policy that allows the beneficiary to extend the coverage term for a set period of time without having to re-qualify for new coverage. A renewable term is contingent on premium payments being up to date, as well as a renewal premium being paid by the beneficiary.

How renewable term life insurance works? 

Let’s say you purchased a 10-year, $25,000 renewable term life policy when you were age 30 and are now age 40, at the end of your policy's term you may have the option of renewing your policy for another 10 years, however, your new premiums will be based on your current age of 40. 

Benefits of renewable term life insurance

The benefits of selecting a renewable term life insurance policy could include being able to get the coverage you need now at an affordable price and having the option of extending your coverage in the future for one or more terms without providing evidence of insurability. Most renewal provisions place a limit on the number of times that you may renew and the age at which you may renew.

Drawbacks of renewable term life insurance

Some drawbacks of selecting a renewable term life insurance policy could include an increase in premiums due to your age and any medical conditions you may have incurred. The cost of coverage may become more expensive, making it less affordable over time.  

What is covertible term life insurance?

This type of policy can allow you, the policyholder, the option of converting your term policy into a permanent policy in the future without undergoing a medical exam or having to answer any health questions. However, it's important to note that some insurance companies may put an age limit on when you can convert your policy. Keep in mind that your new premium at the time of conversion will typically be based on your current age and will reflect the higher expense associated with cash value life insurance.

Benefits of covertible term life insurance

One benefit of selecting a convertible term life policy is having the option of locking into a permanent policy at a later date. This can be an important factor if you think your health may change over the years, affecting your chances of being able to buy more life insurance coverage. It's important to note that, depending on the policy, conversions may not be allowed after a certain period of time or after a specified age has been attained.

Drawbacks of convertible term life insurance

Convertible term life insurance policies have a limited window of time during which you can convert the policy to permanent coverage. If you miss this window, you may lose the opportunity to convert leaving you with only term coverage. Additionally, permanent life insurance policies typically have higher premiums than term life insurance, making coverage more expensive over time. 

Renewable term life insurance vs. convertible term life insurance

Renewable term life insurance and convertible life insurance share similarities that can sometimes lead to confusion. Both options allow you to maintain coverage without the need to re-qualify medically at the end of the initial term. However, they differ in significant ways. Renewable term life insurance only offers the option to renew the policy for another term, typically without a medical exam, but it cannot be switched to permanent life insurance. Convertible life insurance provides the flexibility to convert a term policy to a permanent policy, such as whole life or universal life, without a medical exam. This option would allow you to extend coverage indefinitely and accumulate cash value over time.

While both options offer flexibility, you should carefully consider the differences in the renewal process, conversion options, and potential premiums to find the best option that aligns with your long-term financial goals.

How to decide between renewable and convertible term life insurance 

Deciding between renewable and convertible term life insurance requires careful consideration of your financial goals, coverage needs, and preferences. Here are a few tips to help you get started:

  • Assess your long-term needs — Understanding your future financial obligations, such as mortgage payments, education expenses, and retirement needs, can help you determine the appropriate length of coverage.
  • Evaluate your health and age — Renewable term life insurance may be a suitable option if you’re young and healthy and need coverage for a short period of time. If you anticipate a need for lifelong coverage or want the flexibility to convert without undergoing a medical exam, convertible term life insurance may be a better option.
  • Compare premiums and costs — Consider not only the initial premium rates but also any potential premium increases over time for renewable term life insurance and the potential cost implications of converting to permanent coverage for convertible term life insurance.

*As long as required premiums are paid in a timely manner.

 

WEB.1995.06.16

 

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective or its subsidiaries.

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