What Is Renewable Term Life Insurance In 2019
Having a renewable term policy sounds great, who doesn’t want a life insurance policy that's guaranteed to renew at the end of the term?
But guess what:
A renewable term policy isn’t for everyone.
And depending on your situation, purchasing this type of coverage could be a bad decision.
This post will go over what a renewable term life insurance policy is, how they work, and who would actually need one.
In This Article
What Is Renewable Term Life Insurance?
When you purchase a term life insurance policy, it will last for a specific term length, usually from 5, 10, 15, 20, and 30 years.
At the end of this term period, almost every company gives you the option to renew your policy without having to prove proof of insurability.
So, if you become unable to qualify for new coverage medically, you won’t have to go without insurance.
The downside to this type of coverage is that the policy will renew every year, and you will also see a price increase every year.
Below are the different types of renewable term policies:
Annually Renewable Term Policy
You also can purchase an Annually Renewable Term or (ART) or sometimes called the 1 Year Term.
This policy will only lock your rate in for 1 year, at the end of that year, your price will increase if you decide to renew this policy.
2 Year Term Policy
The 2-year term is a relatively new concept, it is also considered short-term life insurance, and it was created for a few reasons:
Right now, there is only one company that offers a 2-year term policy, and that is Bestow.
End Of Term Renewal
When your term ends, a high majority of the top life insurance companies will allow you to renew your term.
You only have to accept the new payment terms, and you won’t have to go back through underwriting.
Should You Renew Your Term Life Insurance?
It is essential that you are thinking ahead when it comes to renewing your life insurance policy.
You need to figure out a few things before you decide to renew a policy:
Do You Still Need Life Insurance
Term life insurance was created so that you could be covered during the years you are building out your life and family.
At the end of the term, if you did everything you were supposed to do, you should need very little to no coverage.
Your kids should be at the least 10 to 30 years older, and your Mortgage should also be paid off by that amount.
You need to determine if you actually still need life insurance before you go renewing it.
Can You Get Approved For New Coverage
If you still need coverage, you have to determine if you will be able to qualify for a new policy medically.
If you are in a position where you are taking several medications, then you probably need to renew the policy.
If you haven’t been diagnosed with anything but will still need coverage, you should apply for a new policy 5 years before your current policy ends.
Can You Afford The New Premiums
The biggest downside to a renewable term life policy is that it is costly every month.
It is definitely going to be much more affordable to purchase a brand new policy than it will be to renew a policy that is ending.
Affordability will be an essential factor when you are determining if you want to renew a policy or not.
Renewable Term Insurance Cost
The real cost of a renewable term insurance policy doesn’t come until you actually have to renew the policy.
Before you have to renew the policy, the rates and structure work the same way as any traditional term life insurance policy.
Your policy will come with a renewal table showing you what your premiums would be if you decided to renew.
Below is a sample chart of what your renewal schedule could look like:
IN THIS ARTICLE
Determining if you should renew your policy is going to be very personal and depend on your current life situation.
If you have 10 years or so left in your policy, it might not be something on your mind; however, you should be aware that it is coming and you should prepare for it.
If you don’t currently have life insurance, then I would start with a 30-year term policy.
Primarily because it gives you the most extended amount of coverage for the most amount of savings.
For most of us, renewing our term policy is just going to be unrealistic simply because of price.
Sa El is the Co-Founder & CEO of Simply Insurance. He is a Licensed Life and Health Insurance Agent with over 11 years of experience in the industry. He is an Entrepreneur, Insurance Educator and Field Underwriter. Sa is on a Journey to get 1 Million Families insured.