What Is Renewable Term Life Insurance?

Renewable term life insurance is worth considering if you want an affordable term life insurance policy while you're young with the potential to extend your coverage if you still need it when your policy ends.

Purchasing a renewable term life insurance policy can help provide peace of mind that you can access life insurance if your circumstances change. Below, you can find out how renewable term life insurance works and which types are available.

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What Is Renewable Term Life Insurance?

Renewable term life insurance allows you to extend your coverage once your insurance term finishes.

Regular term life insurance covers you for a fixed term. During the policy term, you make level premium payments that end when the policy finishes.

It could cause a problem if you outlive the term of your policy but still require coverage because you have financial dependents, especially if you develop a health condition that makes it hard to purchase a new life insurance policy.

If your term insurance policy contains a renewable term clause, it entitles you to extend your current coverage. Generally, it allows you to renew your policy in 1-year increments when it comes to an end and guarantees to insure you for a certain number of years following your term's end as long as you keep up to date with your premium payments.

Renewable term life insurance tends to cost more in premiums than regular term life insurance. After your level term ends, your premiums will gradually increase as you age to reflect the increased risk to the insurer. Many people choose to pay more for a term policy with a renewable clause because it provides peace of mind that they can extend their coverage without the need for a medical exam or having to prequalify.

What Is Annual Renewable Term Life Insurance?

An annual renewable term policy is a type of renewable term life insurance policy. However, the initial policy term is just one year, while other renewable term policies can last up to 30 years or longer. Your insurer will guarantee insurability for a set number of years, and your policy renews each year unless you cancel it.  

Annual renewable term policies may not be the best choice if you wish to keep your premiums as low as possible for as long as possible because they will likely rise each year, unlike a level term policy.

They could be a good bet if you expect your circumstances to change in the near future and don't want to tie yourself into a long-term policy.

For example, you may choose to purchase an annual renewable term policy for interim coverage if you anticipate qualifying for voluntary employee life insurance through a future employer.

What Types of Term Insurance May Be Renewable?

There are various types of renewable term life insurance. First, you can choose between level term and decreasing term insurance. Level term is the most popular type of renewable term insurance because it pays a guaranteed, unchanging death benefit.

The death benefit gradually gets lower if you purchase a decreasing term policy. 

There are also various level term policy lengths that may include a renewable clause. Generally, level terms range in 5-year increments from 5 to 30 years unless you purchase an annual renewable term life insurance policy. However, some policies have a level term until you reach a certain age, which is generally 65.

What Is Guaranteed Renewable Term Life Insurance?

A guaranteed renewable clause means that you have the right to renew your policy on specified policy anniversaries without the need to prequalify. Therefore, you won't need to undergo a medical exam or meet eligibility criteria to renew your policy, but the premium payment amount may change.

You may also be entitled to renew your insurance following qualifying events, such as the birth of a child. However, many insurers place mandatory age limits on guaranteed renewable clauses. 

What's the Difference Between Renewable Term Life Insurance and Convertible Term Life Insurance?

Convertible term life insurance differs from renewable term life insurance because it lets you convert your policy to whole life coverage at any point in your term or before turning 70, whichever happens first. Like renewable term life insurance, you won't need to pass a medical exam or qualify to convert to whole life coverage. 

A potential advantage of convertible term life insurance is that your premiums are invested after you switch, letting your policy accumulate cash value. You're also guaranteed a death benefit no matter how long you live after converting your policy.