What is Renewable Term Life Insurance?
A renewable term life insurance policy is term life coverage with a clause that allows the policy owner to renew coverage at the end of the term without undergoing new underwriting.
Understanding renewable term insurance
When you buy term life insurance, you and the insurer enter into a contract that stipulates that they will extend a certain amount of coverage (i.e., the death benefit) to you in exchange for fixed premiums over the specified term. You might buy life insurance with a term of 10 or 20 years, for example.
If your policy has a renewability clause, at the end of the policy term, you have the option to renew the policy — meaning you maintain the same amount of coverage — without going through a new underwriting process. That means that if a serious health condition cropped up that could disqualify you for coverage, you’ll be able to keep your existing policy in place.
That said, insurance companies take the insured’s age into account at the time of renewal. While you won’t see premium increases because of new risk factors that would be discovered during underwriting, don’t expect your premiums to stay level. Because life insurance gets more expensive as the insured gets older, you will always pay more for coverage at the time of renewal.
Some renewability clauses expire at a certain age. You might have the option to renew your coverage until you or the person you’re insuring turn 70, for example.
Annual renewable term life insurance
Most term policies sold today come with a term of a decade or more. But historically, annual renewable term (ART) life insurance was a popular product.
As its name suggests, this policy required annual renewal. With an ART policy, the insured doesn’t need to undergo new underwriting each year, but the policy owner does need to prepare for their premiums to increase on an annual basis.
ART life insurance was popular because it gave people, especially younger individuals, an easy way to get started with low-cost life insurance coverage. But because the premiums associated with the policy increase year after year, over time, it’s generally more affordable to buy life insurance with a longer term.
Still, though, people who need short-term life insurance might choose an ART policy to put coverage in place while they shop for a policy with more longevity.
Renewable term insurance vs. convertible term insurance
Renewal term life insurance is not the same as convertible term life insurance. While both types of life insurance give the policy owner options as the end of the policy term approaches, as we just explored, renewable term insurance allows them to renew the coverage with a specified term.
Convertible term insurance, on the other hand, allows the policy owner to convert (hence the name) the term policy into a permanent one. After conversion, they’ll pay more for their coverage because it lasts the insured’s lifetime and generally includes a cash value component, but the policy owner won’t need to worry about another renewal process — and the increasing premiums that come with it — down the road. Most term policies are both renewable and convertible.