What Is Renewable Term Life Insurance?
Renewable term life insurance is a type of term life insurance that allows a policyholder to renew or extend their coverage after the initial policy term without undergoing a new medical examination or proving insurability again.
With a renewable term policy, the death benefit generally remains the same when the policy is renewed, while the premium usually increases because the policyholder is older. Renewable term policies may also have a maximum age or a specified period during which renewal is allowed.
How Does Renewable Term Life Insurance Work?
When you purchase a renewable term life insurance policy, the policy includes a provision that allows you to renew your coverage at the end of the original term without undergoing another medical examination or medical underwriting.
However, the cost of coverage usually increases each time you renew the policy because premiums are generally based on the policyholder's age at renewal.
If the policyholder dies while the policy is active, the beneficiaries receive the death benefit according to the terms of the policy.
Does Renewable Term Life Insurance Have Cash Value?
No. Renewable term life insurance does not have cash value.
Cash value is a feature generally associated with certain types of permanent life insurance. It can accumulate over time and may be available to the policyholder through withdrawals or loans, depending on the policy.
Like other forms of term life insurance, renewable term insurance primarily provides a death benefit for a specified period rather than building cash value.
What Is the Difference Between Renewable Term and Convertible Term Life Insurance?
Renewable term life insurance allows a policyholder to renew their term coverage after the initial term without undergoing a new medical examination or proving insurability again.
Convertible term life insurance, on the other hand, allows a policyholder to convert their term policy into a permanent life insurance policy, such as whole life insurance, without undergoing a new medical examination, subject to the policy's terms and conditions.
A single term life insurance policy can have both features. Such a policy is commonly known as a renewable and convertible term policy (R&C).
Advantages of Renewable Term Life Insurance
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Renewal without new medical examination: The policyholder may be able to renew the coverage without undergoing another medical examination or medical underwriting.
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Lower initial cost: Term life insurance is generally less expensive than permanent life insurance, particularly during the initial policy period.
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Continued protection: Renewal can allow the policyholder to maintain life insurance coverage after the original term expires, subject to the policy's renewal provisions.
Disadvantages of Renewable Term Life Insurance
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Age limitations: Most renewable term policies have a maximum age or a specific period after which the policy can no longer be renewed.
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Increasing premiums: Premiums generally increase as the policyholder gets older and renews the policy.
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May become expensive over time: Although the initial premium may be affordable, repeatedly renewing the policy can eventually make the coverage significantly more expensive.
Conclusion
Renewable term life insurance can be useful for people who want the option to continue their life insurance coverage without having to undergo a new medical examination when renewing the policy. It can be particularly attractive to younger and healthier people because the initial premiums are generally more affordable.
However, policyholders should consider the increasing cost of premiums and any age limits that apply to renewal before choosing this type of life insurance.