What is Re-Entry Term Life Insurance?
Re-entry term life insurance is a type of renewable term insurance that periodically requires new medical underwriting. If the insured passes the medical exam, they can re-enter into the policy with the same terms (i.e., the same premium).
Types of term life insurance
Re-entry term life insurance is an alternative to yearly renewable term (YRT) insurance and level term life insurance. YRT renews annually. Because the insured is older at each renewal, their premiums increase.
Level term insurance, on the other hand, maintains level premiums for the length of the policy term (e.g., 10, 20, 30 years).
Re-entry term life insurance may be a way for the policy owner to get more affordable premiums than with YRT or level term insurance, at least at the beginning.
Re-entry policies come with set premiums for a certain period of time, usually several years. Once that period elapses, the insured needs to submit new evidence of insurability. In other words, they need to get a new medical exam.
If that medical underwriting doesn’t turn up any causes for concern for the insurer, the insured can re-enter the policy with the same premium (or a slightly increased one that accounts for their increased age, depending on policy terms).
If, however, they fail the medical exam, the insurer can raise their premiums significantly. Re-entry policies come with a guaranteed renewal rate that caps the re-entry price even if the insured becomes unhealthy. But that guaranteed premium will likely be more than the insured would have paid with a level term policy.
Re-entry term life insurance comes with a set schedule of re-entry points. The insured will need to submit new evidence of insurability at each of those points and prepare for potentially increased premiums.
When re-entry term insurance is most useful
Generally, re-entry term life insurance is best as a short-term solution. People can purchase these policies to get affordable premiums for the initial period leading up to the first re-entry point.
That said, if a health condition arises during that period, their life insurance costs will go up. If they had purchased a level term life insurance policy rather than a re-entry one, they would have locked in the level premiums. With re-entry term insurance, they will need to be prepared for higher premiums moving forward.
All told, while re-entry term insurance comes with low premiums in the outset, buying it can be a gamble. The insured needs to hope that no health conditions arise while they carry this type of coverage.