A Renewable Term Insurance Plan is a Clause in a term life insurance policy that allows you to extend your life insurance coverage beyond the original term, even if your health has declined, usually on an annual basis and without a medical exam required to qualify for the renewal policy.
You won’t have to re-qualify for a new policy, but your extended renewable term coverage may raise your current policy rates. That means, if you want to renew coverage, it will cost you more – you’ll be charged a higher premium based on your age at the time of renewal.
What Is Renewable Term Life Insurance Policy?
Renewable term policies allow you to extend your term life insurance coverage without having to buy a new insurance policy.
Term life insurance guarantees a death benefit to your beneficiary for a specific duration, such as 10, 15, 20 or 30 years.
If you pass away during the duration of your policy term, your beneficiary receives the death benefit proceeds of your policy from the life insurance company. If you die after the term ends, your beneficiary receives nothing – the life insurance coverage ends and there is no pay out of any benefits.
When you first sign up for a life insurance policy, you can include a renewable term clause to your insurance contract.
This added protection may result in a higher premium when compared to a nonrenewable term life policy.
Renewability allows you to keep your current coverage beyond the original term, without having to take a new health exam.
If you renew your coverage, your life insurance premiums will probably increase based on your current age and other factors.
How Does Renewable Term Insurance Work?
A renewable term clause allows you to extend your life insurance coverage even if you have developed health problems.
Life Insurers usually adjust for this increased risk by raising your premiums; however, your policy’s death benefit will not be reduced at renewal, unless you request it to be lowered.
You can’t be turned down for coverage if your life insurance contract includes a renewable term clause. Many term policies let you keep renewing your life insurance coverage, although your premiums will increase with each renewal.
A renewable term clause is different than an annual renewable term policy, which offers an initial one-year life insurance policy, and the option to extend your coverage each year (annually). You can renew your coverage each year up to a certain age with annual renewable term policies.
Annual renewable term policies offer guaranteed insurability for a certain time, along with a level death benefit.
Annual renewable term premiums are increased each year at renewal, as your likelihood of dying increases each year.
In addition, a renewable term life policy differs from convertible term life insurance. Convertible Term allows you to convert your current coverage into permanent life insurance, which never expires.
Advantages of Renewable Term Life Policies
Renewable term insurance may be right for you and your family if you still have financial obligations when your current term life policy ends, such as a home mortgage loan, dependent children, or other family members who still rely on you for financial support.
Benefits of Renewable Term Life Policies
Flexible Terms of Coverage
Life doesn’t always go according to the plans we make. If your term life insurance is set to expire, you might enjoy peace of mind knowing it can be easily extended to continue providing financial protection for your family.
Affordable Protection
In the short term, it is often cheaper to renew your current term life coverage than to purchase a new life insurance policy or convert your term policy into a permanent life insurance policy.
Ease of Renewal
It is much easier to renew your current term policy instead of applying for a new policy and going through the underwriting and health examination process, if you utilize the renewable term clause in your current life insurance policy.
No New Health Examination Required
Renewable term insurance exempts you from answering additional health questions or having to take a new physical examination. This can be beneficial if your health has declined since you first purchased your original term life insurance policy.
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Term Policy with a Renewability Option
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