Renewable term insurance is a type of term life insurance that provides the policyholder with the option to renew the policy upon its expiration without needing to undergo a medical examination or submit evidence of insurability. This feature is advantageous because it allows individuals to maintain their life insurance coverage even if their health status has changed.
Definition
Renewable Term Insurance is defined as a type of life insurance policy that allows the policyholder to renew the coverage at the end of the original term without the need for medical underwriting. The premium for the renewed term may increase based on the insured’s age at the time of renewal but will not be subject to new medical evaluations.
Types of Renewable Term Insurance
Level Term Renewable Insurance
This type features fixed premiums and coverage amounts throughout the initial term. Upon renewal, the premiums are adjusted based on the new age of the policyholder, but the coverage amount remains the same.
Annual Renewable Term Insurance
This type of policy is renewed annually. Although the premiums start low, they typically increase each year as the policyholder ages. The advantage is the flexibility and lower initial cost.
Special Considerations
- Premium Adjustment: During renewal, premiums are recalculated based on the age of the policyholder at the time of renewal and not their initial underwriting.
- Policy Duration: Some policies may have a maximum age beyond which they cannot be renewed.
- Health Changes: The insured’s health condition at the time of renewal does not affect eligibility (i.e., no medical exam required).
Example Scenario
Consider a 35-year-old individual who purchases a 10-year renewable term insurance policy. For the first 10 years, they pay a fixed premium. At the end of the 10-year term, regardless of any changes in their health, they can renew the policy for another 10 years. The new premium will be higher and based on the individual’s age (45) but will not require a medical exam.
Historical Context
The concept of renewable term insurance emerged as a consumer-friendly option in the life insurance market, providing flexibility and continued coverage without the inconvenience and uncertainty of medical underwriting. It has been particularly valuable for individuals who may develop health issues over time.
Applicability
Renewable term insurance is especially beneficial for:
- Young Families: Those who want initial low-cost coverage with the option to renew.
- Individuals with Changing Health: Those who may develop health issues and want to ensure continued coverage.
- Short-Term Financial Planning: Ideal for individuals planning for coverage needs over short and medium terms.
Comparisons and Related Terms
- Convertible Term Insurance: Allows the policyholder to convert the term policy into a permanent one without a medical exam.
- Level Term Insurance: Offers a fixed premium and death benefit for the specified term without optional renewability.
- Whole Life Insurance: Provides lifetime coverage with a consistent premium, in contrast to term insurance which is temporary.
FAQs
Q1: Can the premium of renewable term insurance increase upon renewal?
Q2: What happens if I fail to renew the term insurance?
Q3: Is renewable term insurance more expensive than level term insurance?
References
Summary
Renewable Term Insurance is a flexible and convenient life insurance option that allows policyholders to renew their coverage without the need for medical underwriting. It caters to individuals looking for adaptable, short-to-medium term protection, and provides peace of mind for those concerned about potential health changes.
By understanding renewable term insurance, policyholders can make informed decisions that best suit their financial and health circumstances.
