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WEB.1995.03.26
Choosing the best term life policy option for you
Learn about renewable term life insurance vs. convertible term life insurance with examples. Find out more about term life options.
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.
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.
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.
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.
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.
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.
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.
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 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.
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:
*As long as required premium payments are timely made.
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