All term life insurance applicants must ultimately choose the policy term when applying for coverage. However, what seems like a simple decision often turns out being difficult for many. Most term life insurance policies offer policy terms or term lengths of 10 to 30 years. Knowing how long coverage will be needed is the challenging part for most people.
Regardless of the term length selected, it is important to make sure the policy contains a guaranteed renewable provision. A term life insurance policy’s renewability provision is arguably its most important feature. The provision allows the policy owner to renew the policy at the end of the policy term, without proving evidence of insurability again (i.e. no new medical exam). This can be done annually, typically to age 95 or so (varies by company).
The obvious advantage of the renewability provision is the policy can be extended, even if the insured is in poor health. Suppose you, as the insured, have been diagnosed with a serious medical condition during the term of your policy. When the policy expires, you may no longer be insurable; which is to say you could not be approved for a new policy. However, you may still need the coverage. Perhaps you originally chose a ten-year term, but now you need a twenty-year term due to the birth of another child. The renewability provision would allow you to extend the coverage despite your current medical condition.
The primary disadvantage to extending the policy beyond the original policy term is the cost. Once the policy term ends, the guaranteed or level premium rate you have been paying ends as well. There is little doubt the insurance company will charge a higher premium each year you choose to renew the policy beyond the original policy term. Most term life policies list the current and maximum renewal premiums in the policy.
So let’s recap the renewability provision:
- The insurance company guarantees they will renew the policy annually at the end of the original policy term.
- No new evidence of insurability is required.
- The policy automatically renews provided the renewal premium is paid on time.
- This allows an otherwise uninsurable individual to keep their life insurance coverage in force.
Please do not confuse this provision with re-entry, which is entirely different. Your questions/comments are welcome as always!