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Renewable Term Insurance
Renewable Term Insurance is known for a special feature in accordance with which when your protection expires at the end of the designated term, you can renew the coverage but at a higher price conditioned by your older age. It is a natural outcome: as people get older, Renewable Term Insurance premiums usually increase so that the insurance company would be able to cover the expenses.
With this type of Life Insurance there is no investment component, no build-up of cash value. Upon the death of the insured person the Life Insurance beneficiary gets the death benefit equal to the face value of the policy, which is free of income tax.
With Renewable Term Insurance a person can continue the existing policy provided he/she pays the premiums, even if the health of the insured or other factors could be a reason for rejection with other Life Insurance plans. The policies of this type are normally renewable up to a specified age (usually 65, but sometimes up to 80). When you first apply for Renewable Term Insurance you are to visit a doctor who will examine you and depending on your current medical condition will determine your eligibility. The results of this examination as well as your lifestyle and the assessed risks of your death will influence the amount of your policy premium. If you opt for renewing your policy at the end of the first year of your coverage, there is no need for you to undergo any medical examination again.
The initial premium normally depends on the insured person's general state of health in the event of the policy issue, his/ her age, tobacco usage and it normally remains the same for the length of the term. At the same time it is advisable to clarify this point with an insurance agent. Some companies do not guarantee level premiums throughout the term and may raise the rate. There is also a possibility that a company guarantees equal premiums just for some initial period of the term. After this period is over, the premiums will be liable to increase. That is why if you are seriously thinking about purchasing Renewable Term Insurance, remember that guaranteed level premiums throughout the whole term of your insurance should be one of the kernel considerations on your list.
Another important point to keep in mind if you are choosing a Renewable Term Insurance plan, is the policy term. You can either have an annually Renewable Term Insurance policy or a policy that covers terms from 5 to 30 years (normally 5, 10, 20 and 30 years). The annually Renewable Term Life policy is a foundation for longer-term policies, which basically operate under the same principles but allow variations. Thus, the annually Renewable Term Life Insurance is the simplest form when it comes to determining the amount of the premium the insured is to pay with the specification of the initial growth rate for premiums and the frequency of payment.
If you choose a policy with the term beyond one year, this type of Renewable Term Life Insurance also has its advantages. Your total multiyear premium will be spread over the policy term, which can make it easier for you to cover the cost of your insurance without noticeable losses in your budget. Besides, the rates for longer-term policies are normally more favorable to the insured. In general, if shorter-term policies provide more flexibility when it comes to the costs incurred at the renewal of the policy, the advantage of longer-term policies is that they offer a better price and may guarantee level premiums over a given period of time.
If you are not clear about your Life Insurance needs, it is better to choose Annual Term Life Insurance or a shorter-term policy until you determine your needs or until the situation clears up. This option will allow you to change or altogether drop the policy without extra expenses typically associated with dropping a longer-term policy.
Renewable Term Insurance policies, both annual and longer-term, are not deprived of disadvantages and potential extra expenses you should be aware of. The premiums in later years may be excessively high. With a longer-term policy you may pay level premiums, which is convenient, but as it appears, in most cases you still overpay even in early years. To illustrate it, if you decide to drop the policy and the term is only half through, the premiums you have paid so far are enough to cover the whole cost of your policy.
It may happen that at a certain point the price of the policy will grow too much for you. In such a case it is reasonable to check out the available alternatives. Among alternative Term Insurance types there are two which deserve particular attention - the Level Term and the Decreasing Term policies. Another option is to sign up for a Permanent Life Insurance policy. However, in comparison with Permanent Life Insurance rates, the premiums under Renewable Term Insurance contracts, especially in early years of coverage, are relatively low.
Some Renewable Term Insurance policies include a provision according to which your policy can be converted to a permanent type policy offered by the same insurance company without any additional evidence of insurability. This feature is another valuable contribution to other options provided by Renewable Term Insurance policies.
Renewable Term Insurance can be an optimal option for you, if you are young and you need a temporary protection. It has definite advantages over non-renewable policies. For example, if you have a Non-Renewable Term Life policy and your health problems become acute, your policy premiums will be likely to increase, or, what is worse, you may no longer qualify for Life Insurance at all. These problems can be avoided if you choose Renewable Term Insurance despite paying higher rates for it. It will pay off in the long run. Thus, this type of insurance provides a convenient and quite affordable opportunity to purchase quality, low-cost Term Life Insurance, if your need for this policy is temporary.