Understanding Renewable Term Life Insurance

What is Renewable Term Life Insurance? 

Renewable term life insurance is a type of term life insurance policy set for a certain amount of time, but the owner can renew the policy at the end of the term rather than let it expire. A term policy is set to cover an established term, such as 10, 20, or 30 years. With a renewable term policy, however, the policy owner can keep the policy going without undergoing medical underwriting or re-applying for life insurance. 

There are two main types of life insurance: term life and whole life insurance. While term life insurance is meant for temporary coverage, whole life insurance policies are meant to last a lifetime with no need for renewals as long as the premiums are paid. 

Who Should Consider Renewable Term Insurance?

Life insurance is a crucial decision for everyone to consider. It’s also a very personal decision, as it’s the time when you have to think about the lives of your loved ones and plan for them to move forward without you. 

A renewable policy’s flexibility could be the best option for a wide range of individuals, and the following people could benefit the most from a renewable term life policy:

• Policyholders with medical conditions that surfaced during the current term that could exclude them from other policies
• Policyholders who need a short-term, flexible policy
• Healthy young people who need protection against unforeseen life events
• Policyholders who are in life transitions, such as marriage or divorce, and whose lives are therefore too turbulent to insure under a more permanent life insurance policy
• Insureds who can’t qualify for a new policy because of their age

How Does Renewable Term Life Insurance Work? 

A renewable term life insurance policy works very similarly to a traditional term life insurance policy. With a traditional term policy, coverage is locked in for the customer at a certain price for a certain amount of years — known as the term. However, after the initial term has expired, the policy may cancel. With a renewable term policy, the policyholder has the option to renew the policy without having to purchase a new policy or undergo the eligibility process. 

Eligibility

Eligibility for a renewable term policy will differ greatly depending on many factors, such as the amount of coverage applied for, the length of the term, and the insurance company’s requirements. Typically, there is no difference in eligibility between a nonrenewable term policy and a renewable term policy. With that said, the general requirements for a term policy are as follows:

• Age: Most insurance companies require the applicant to be at least 18 years of age and often cap policies at around 70 or 80 years old.
• Health Status: Most term policies will require the applicant to undergo a medical exam. Your health status will determine your rates and overall eligibility. 
• Occupation and Hobbies: Certain high-risk jobs and activities may make you ineligible for a life insurance policy or raise your premium. 

Coverage 

With a renewable term policy, the insured can pick their death benefit and term length based on their needs. The death benefit is the amount paid to the beneficiaries upon the death of the insured. The term length is the time that the policy is guaranteed to cover. Common terms offered are 10, 20, and 30 years. How often the policy renews after the initial term may be predetermined by the policy, or the customer may have the ability to choose the term length at renewal. 

How Much Does a Renewable Term Life Insurance Cost? 

While there is no set cost for a renewable term policy, it is important to know what factors an insurance company considers to determine the insured’s premium. The following factors can influence — and often increase — the cost: 

• Age: Just as with all life insurance policies, the older the individual is when the policy starts, the higher the premium may be.
• Sex: Generally, a life insurance policy for a male insured will be higher than that of a female. This increase is due to several factors, including average life expectancy, certain health risks, and the likelihood of engaging in high-risk behaviors. 
• Tobacco Usage: Life insurance companies look at tobacco usage to determine rates. Being a tobacco user may significantly increase the policy’s premium.
• Overall Health: If an individual suffers from certain health conditions — such as cancer, cardiovascular disease, diabetes, or a history of substance abuse — this may raise their premiums. 
• Occupation: Certain jobs, such as firefighter or logger, are considered high-risk and may cause higher premiums. 
• Lifestyle: If the insured participates in high-risk activities, such as mountain climbing or scuba diving, they may see an increase in their premium. 
• Policy Specifics: The specifics of the policy itself will significantly affect on the cost. A policy with a higher death benefit and long term would cost more than a policy with a smaller death benefit and shorter term. 
• Renewals: Although you can elect to keep a renewable term after the initial term is over, it will likely not be at the same price. Every time the policy renews, the price will increase. 

To get an idea of the cost of a renewable term policy, consider a 35-year-old male, non-smoker, who is in good health. If he were to purchase a 20-year renewable term with a $250,000 policy, the price would likely be between $25-$30 per month. People who smoke can usually expect to pay 2-3 times more for a life insurance policy for a person of similar age and situation.

Should You Get Renewable Term Life Insurance? 

While a renewal term policy may be a good option for some, there may be better options. It is essential to examine all the advantages and disadvantages before deciding. 

Advantages

There are several advantages to renewable term life insurance policies, mainly concerning ease and flexibility. Further breakdown of the benefits is as follows:  

• Easily Renewable: The policy can be renewed without a medical exam and without redoing the underwriting process when the term expires. Once the initial term expires, the policy will renew over again at set intervals. 
• Flexible: An insured may be able to set the extended policy term anywhere from one year to 20+ years without resubmitting a medical exam.
• Initially Affordable: Young and healthy recipients are guaranteed maximum coverage for the lowest price.
• Temporary: A renewable term policy is optimal if you need short-term coverage for outstanding debt while traveling abroad or for additional protection through the unpredictability of day-to-day living.

Disadvantages

The disadvantages of renewable term life insurance policies are mainly surrounding the premium increase at renewal. While affordable when the insured is younger, the price can change drastically from term period to term period. 

Other disadvantages can include:

• Expensive Renewal: The price for the policy goes up at each renewal term.
• Non-Convertible: You can only switch the type of life insurance policy you have during your term if you have included that rider.
• Age Limit: The maximum age an insured can be to renew their policy varies from state to state but is usually around 70 or 80.
• No Cash Value Growth: An insured signs up for a set policy amount that doesn’t change over the term, and once the policy has expired, the insured loses access to the death benefit amount.
• Short-Term: This policy only lasts as long as the term you preselected.

How to Get a Renewable Term Life Policy 

1. Assess your insurance needs. The first step in considering any life insurance policy is to determine how much coverage is needed. This can be done by looking at what expenses you have, such as housing, child care, health care costs, and final expenses. It is important to consider any other policies you have in place and if they are permanent or temporary.
2. Research insurance providers. While many life insurance providers are available, it is crucial to research potential companies and look for traits such as financial security, claims satisfaction, customer service satisfaction, and time in business.
3. Obtain quotes and compare. Once you’ve selected a company or a few companies to look at, you should get multiple quotes to compare policies and prices. Quotes can usually be obtained online or by calling the insurance office.
4. Complete the application. The application will ask questions to collect personal information such as your date of birth, address, and social security number. There will also be questions about your occupation, lifestyle, and health. Having all medical information on hand, such as doctor’s names and a medication list, will help speed up the application process.
5. Undergo the underwriting process. Depending on the insurance company’s requirements for insurability, an insured may undergo an underwriting process. This can include obtaining medical records, answering more detailed health questions, providing information on family health, and experiencing a medical exam. The medical exam, if needed, is usually performed by a third-party health professional and includes vitals, measurements, a urine sample, and a blood draw.
6. Review the policy and pay the first premium. The insurance company will contact you when they have determined your eligibility and premium. At that time, you have a 10-30 day window to decide if you want to keep the policy. If you do not, the policy will be canceled, and any premiums paid will be refunded. It is important to note that most insurance companies require payment at the time the application is submitted. In rare cases, the company may hold off until the policy is approved. In this case, the policy will be in effect once you pay the first premium.

Alternatives to Renewable Term Life Insurance 

A renewable term policy may not be the best option for everyone. It is important to know what other options are available, such as convertible term life policies and permanent life insurance.

Convertible Term Life Policy

A convertible term life policy is a type of term life insurance policy that offers the insured the option to convert the policy to a permanent policy down the road. These policies have an initial term period with a set price. After that period, the insured may elect to convert the policy to a permanent one rather than renew or cancel it. 

This type of policy may be a great fit for those who need a large amount of insurance now but can reduce their coverage in the future. Some insurance companies offer term policies that are both renewable and convertible. In this case, an insured can decide to renew or convert the policy up to a certain age.

Permanent Life Insurance

Permanent life insurance is designed for insureds to have their entire life. These policies have a set price that will not change or renew for the policy’s lifetime. Some permanent policies, such as whole life insurance, offer additional benefits than term policies. Whole life policies provide a death benefit and a cash value you can access while alive. For this reason, a whole life policy is often more expensive than a term policy at comparable coverage amounts. Purchasing a permanent policy may be a better fit for someone who may not need much coverage and can afford to keep the premium in force. 

Putting It Together 

Purchasing a life insurance policy is an important decision that should not be taken lightly. A renewable term policy is best suited for an individual who is looking for a death benefit that is guaranteed for a set amount of years at an affordable price. You will also benefit from the flexibility of renewing the policy if your situation changes and you want to keep the coverage for a longer period. 

Frequently Asked Questions