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Renewable-term life insurance

Renewable term life insurance is a policy that gives the possibility to extend the term of the cover. Usually it is done when the first agreed insurance period is coming to an end. The contract is renegotiated and an individual is insured for a longer time compared to what was agreed in the beginning. Usually insurance companies offer such policies for those clients who always paid their premiums in previous periods on time.

Advantages of renewable term life insurance

The biggest advantage of this kind of insurance is that an individual has no need to have additional medical check ups. Thus, if a person suffered from some serious health problems during the duration of the original policy, it will not affect the cost of a new policy. However, by the time a person renews his insurance policy he is older and as a result premiums usually are higher.

Renewable term life insurance is also beneficial for those people whose health is deteriorating. By buying renewability option an individual protects himself from the probability of becoming uninsured. Because of the possibility to renew the cover after the term of the old contract is over renewable term insurance is a tempting option and an alternative to whole life insurance that worth consideration.

What is more, it is usual for an individual to change jobs often or start new hobbies. If a person changed his previous job to a more dangerous one, he would be required to pay a higher premium because the insurance company faces higher risk. However, with renewable term life insurance a fact that a person started working on a gas platform in an open sea or goes scuba diving each year does not change the price of the premiums. The only factor that is used in order to determine how much a person has to pay for his life cover is his age.

Renewable term life insurance is also a good option for those people that do not know how long they will need term life insurance. They do not have to wait 20 or more years in order to quit the policy. When time to renew a policy comes, a person can simply decide not to continue the cover.

Another advantage of renewable term life insurance arises from contestability period of the policy. Incontestability period comes after certain time after the contract was signed when life insurance carrier cannot terminate the policy earlier because of preexisting medical conditions. When a person buys renewable term life insurance, regardless of how many times the contract is renewed, incontestability period is calculated from the first days the policy was underwritten. 

Disadvantages of renewable term life insurance

The biggest disadvantage of renewable term life insurance is that the premiums constantly increase. During the last years of the cover the person can pay very big premiums even compared with whole life insurance premiums. As a result, it is extremely important to do a careful research and find out how the premiums will be calculated after every term. These calculation methods from different insurance companies have to be compared one with another in order not to be unpleasantly surprised in the future with colossal price of the premiums.

Another disadvantage is that this policy does not have cash in value. As a result, if the person survives the term and is too old to renew the policy, he gets nothing back. The third disadvantage is that, unlike with whole life insurance, the dependents can get only the face value of the policy. Because renewable term life insurance does not have a saving component attached there is no possibility that death benefit can be increased through successful investments. What is more, the absence of saving element does not allow the individual to take out a loan against this type of policy.

Determining the frequency of renewal

When choosing renewable term life insurance it is important for an individual to determine how long he wants his cover to last before a renewal option can be exercised. The contract can be renewed every year or after a certain amount of time. The periods set by life insurance providers usually are 5, 10, 20, or 30 years. It is important to remember that after every renewal the premiums increase. As a result, it is important to choose the term of the policy carefully. Longer term of the insurance contract allows a person to take advantage of a better price of the premiums. This is because an insurance company sees the customer as loyal. However, a shorter term always gives the policyholder more flexibility. Flexibility is important because life insurance market is constantly changing and as a result new better deals can be offered by other life insurance providers at any time. However, the price of the premiums is always higher in this case. The reason behind this is that every time the contract is renewed the person is older and as a result there is a higher possibility of death. Besides flexibility, often renewal of the policy is beneficial for those people that need a big cover but cannot pay for it at the moment. This way, by choosing to renew his policy every 5 years, for example, an individual can pay smaller premiums and get a bigger cover. The biggest amount of cover per pound can be purchased by choosing annually renewable premiums.

Exclusions of renewable term life insurance

Almost all renewable term life insurance policies have some exclusions. Individual should always read the policy carefully and clarify all the exceptions. These exclusions can be very different. For example, a company can refuse to renew an existing life insurance contract if a person attempted to commit a suicide. Others can involve an exclusion that indicates the maximum age up to when the policy can be renewed. For example, some life insurance providers refuse to renew the policy once an individual is 65 or older.