Often considered a temporary policy, term life insurance is designed to cover you for a specific “term” or period of time. This could be anywhere between one and 30 years. During this time, you'll have the coverage you need with premiums that remain level for as long as you continue to pay your premiums.
But what happens if you still need life insurance coverage and your term is just about up? If you're contemplating buying term life insurance but worry about what you're going to do when the policy expires, you may want to consider renewable term life.
A renewable term life policy will allow you to renew or extend your existing term policy for an additional term regardless of your current health. This can be a huge benefit because even if changes in your health have made you uninsurable, the insurance company has essentially guaranteed to renew your policy up to a certain age.*
It's important to note that even though the life insurance company has guaranteed you the right to renew your term policy, your premiums for the same amount of coverage will be based on your current health. For example, let's say you purchased a $100,000 20-year term policy at age 30 as a non-smoker. Now, at age 50, you smoke and have gained an extra 50-pounds. Based on your current age and health, you may be looking at double the amount of premium for the same $100,000 worth of coverage.
As with every life insurance policy, there are pros and cons to consider. Here's what you should know when it comes to renewable term life insurance.
Pros of renewable term life insurance:
- Generally provides initial low premiums
- Can be renewed for additional terms
- Amount of coverage remains the same
Cons of renewable term life insurance:
- Premiums increase with each renewal due to your attained age
- You may not be allowed to renew the policy for more than one additional term
- Changes in your health can result in paying more for the same amount of coverage
- There is generally a set age limit as to when you can no longer renew the term
This is a basic overview of renewable term life insurance. Some term policies don't offer the provision of renewability, but provide a term conversion option (a provision where you can exchange your term policy for permanent** life insurance of equal value), or even a type of hybrid policy that offers both.
If you want to get a better understanding of whether or not a renewable term life insurance policy is right for you, speak to a qualified life insurance agent or company representative for more information. You might find that a permanent policy such as whole life or universal life may be a better choice.
*Individual insurers will differ, but most term policies will have a certain age limit in which you will not be able to renew your policy, such as when you reach age 75 or 80.
**As long as required premium payments are timely made.