Term Life Insurance Articles
Why Renewable Term Life Insurance Policies Aren't For Everyone
2010-01-15
Many term life insurance policies offer "renewable" coverage, and this can seem like an attractive option when you're looking around for term life insurance quotes. In this sort of policy, at the end of the term of your life insurance coverage, you will be offered a chance to renew your policy without having to undergo a physical or pass any medical tests (as is typical with other forms of insurance). However, while this type of policy can be a great idea for some young, healthy policyholders looking for a simple life insurance policy, it's not always the best choice for every consumer. There are several reasons for this.
First of all, while rates can be lower with renewable insurance policies, you may actually pay more in the long run. Generally, the term of your term life insurance coverage is shorter with a renewable term life insurance policy than it might be for other policy types. While many policies extend for 10, 20 or 30 years, renewable term life insurance coverage can have a term set as low as one year. This can be a disadvantage, though. Every time the coverage is renewed, you'll probably also end up paying a higher rate than before. The reason for the premium increase is simple - you're older, and therefore more of a risk for your insurer. Over several renewal periods, the increase in premiums can be quite significant. If your initial goal when looking for coverage was to get a low rate, renewable insurance could eventually cost you more than non-renewable plans.
There are also many types of life insurance policies that are a better investment. For example, whole life insurance policies allow all or a portion of the premiums paid into a plan to be repaid to the policyholder after a certain length of time (usually, when the policy holder turns 65). However, premiums under these policies are higher than with term life insurance policies. A way around this disadvantage is to purchase a convertible term life insurance policy, which is a term life insurance plan that can be changed into a whole life policy at a later time. Renewable plans usually don't offer this ability. Every time you renew, they remain a "term" life policy with no investment value.
Still, renewable term life insurance is sufficient for many young buyers, owing to the policies' low initial costs. Increases in premiums are typically guaranteed, so when a policyholder renews his coverage, he won't get any sudden surprises, and increases in premiums are low at first. Older buyers (and any buyers looking for a more complete solution to their life insurance needs) should research other options that are designed for longer terms.
