What Is Renewable Term Life Insurance?
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Most but not all term life insurance plans are renewable after their term is up, however a yearly renewable term life policy’s premiums rise each year as opposed to in ten or 20 years with a level life insurance policy. Annual renewable term insurance (ART) guarantees future insurability for a set number of years.
To find out if your annual term life insurance is renewable, look for a clause in your insurance policy that allows for renewals without new underwriting. With a renewable policy, you will be rated on your age but not health. Not having to re-qualify is ideal for policyholders with a chronic illness that develops over the course of coverage. All they have to do is continue to make payments to be covered. There are age limits to renewable term life policies, however, typically around age 70.
Like all insurance policies, a renewable term life policy pays a death benefit to any named beneficiary if the policyholder passes away within the one-year term. Unlike permanent life insurance, a renewable term life insurance does not have a cash value.
What Is Yearly Renewable Term Life Insurance?
An annual renewable term life insurance policy covers the policyholder for a year. The following year, the rate will increase due to an increased risk with age and even more each additional year, usually without the need for a medical exam.
The Cons of Renewable Term Life Insurance
Renewable term life policies are very low cost and have flexible premiums, which is why younger insurance shoppers buy them. The problem with them is that if you renew a term policy over the course of many years, you could be paying more in premiums than if you bought a level term life plan, which has a long-term fixed premium cost and fixed death benefit. You’d also be paying more than you would for a permanent life insurance policy, which has a cash value that you can cash out or borrow against in loans.
Is Renewable Term Life Insurance the Same as Convertible Term Life Insurance?
While they are often mistaken to be the same product, renewable term life insurance is different from convertible term life insurance, which allows the policyholder to change the term life policy into a permanent life insurance policy that covers an entire lifetime. Renewable term life policies, however, do not always allow for a conversion to a permanent life plan. Depending on the insurer, if someone buys a yearly renewable term life policy and later wants a permanent one, the insurance company may or may not let a policyholder convert the policy to whole life insurance without taking a medical exam.
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