Consider this scenario: You bought a 20-year term life insurance policy when you were 25 and have been perfect with the premium payments. You are 40 now. In another five years, your term plan will lapse. However, you want to continue this term coverage beyond the 20-year term.
For such needs, there is the renewable term insurance policy.
Renewable Term Insurance
What is a term insurance plan? It is life insurance with death benefits only for the specified policy term. The renewable option in such term plans allows you to extend the same life cover/death benefit beyond the original policy term.
However, note that if you exercise the renewable option on your term plan, the premium will be reworked as per your age at the end of the original term; which means, for that same coverage, you will pay a significantly higher premium over the renewal term.
If there is a renewable clause in your term policy, you should be able to calculate the new premium using your insurer’s term insurance plan calculator.
Qualification for Renewable Term Insurance
You can exercise the renewable term option in your term plan only if you are prompt and up to date with your premium payments. This payment regularity is the reason why the insurer considers it safe to extend your term beyond the original term.
Advantages of Renewable Term Insurance
- You do not need to qualify again for the continued coverage when you exercise the renewable option on your term policy.
- You do not need to go through medical tests or answer medical questions to avail the continued coverage.
- Your life cover continues beyond the original term of the policy and as per the period specified in the renewal clause. The death benefits stay intact for the policy nominee.
Renewable Term Cover Vs. Convertible Term Cover
Customers get confused between renewable term insurance and convertible term insurance.
Convertible term insurance is a term insurance option that allows you to convert your pure term life cover into a whole life policy (which has survival benefits). Renewable term insurance only allows you to extend the term of the policy; the type of cover, i.e., pure death benefit, remains the same.
What is the Need for Renewable Term Cover?
It might seem to you that if you have adequate term cover for the 25 or 30 years, there’s no need to extend it further. Let’s look at this via an illustration and two competing scenarios.
You took a 25-year term policy when you were 25 years old, covering you till you hit age 50. You have been prompt about paying premiums every year and have a spotless record. Now, at 48, you develop a serious health issue.
Scenario 1: Not Availing Renewable Term Cover
In two years, your life cover goes away. You still have many financially productive years ahead of you that you need to provide life cover for. However, with this health issue, it is unlikely that insurers will consider giving you a fresh term policy when you complete 50 years of age – for them the risk is too great.
Scenario 2: Availing Renewable Term Cover
You exercise the renewable option on your policy, you extend the coverage, no question asked, no additional tests. You simply agree to pay the (significantly) increased premiums and do so as promptly as you have been doing your entire life. Your life cover remains and even the spectre of your passing on does not affect the death benefits your near and dear ones can avail.
Conclusion
Term insurance is primarily about ensuring that your dependents can avail your income in the event of your passing and not being there to provide that income. The renewable option of your term insurance gives you options to extend that coverage at just the added financial cost. The benefits remain the same, the peace of mind continues, and you can look at the latter part of your productive years with confidence and without worry.
