Renewable Term Life Insurance: The Advantages and Disadvantages

Renewable term life insurance is also called annual renewable term life, or yearly renewable term. The actually renewal term can vary with annual being the most common.

Advantages of Renewable Term Life Insurance

Low Cost Premiums – This is the number one appeal to term insurance. Term life insurance is affordable for most, allowing them to get the peace of mind of having life insurance without the premiums of permanent life insurance.

Policy Renewal – Your renewable term life insurance policy will state the renewal term. The policy will also state the maximum times the policy can be renewed, as well as the maximum age.

Affordable Asset Protection – If you have a mortgage or you’ve got a loan for another asset, that you want to make sure would be paid off should you die, renewable term life insurance is an excellent choice in insurance.

No Re-qualifying – When you decide to renew the term policy, it is referred to as renewal of term life insurance policy without evidence of insurability, because you are not required to re-qualify on a renewal. Translated, if you become terminally ill, your policy renewal cannot be declined.

Disadvantages of Renewable Term Life Insurance

High Premiums in Later Years – While early on the premiums are cheaper as you age the premiums go up and can actually become so high that renewing is cost prohibitive.

Overpay In Early Years - While the premiums are affordable they are often still higher than the premiums you would pay for that same coverage in a whole life policy.

No Investment Component – With renewable term life insurance there is no cash value that builds. When you die the beneficiary gets the amount of the face value of the policy. If you do not die during the policy term there is no cash value for yourself. The policy simply ends.

Some renewable term life insurance policies have a provision that allows you to convert the policy to a permanent life insurance policy without further evidence of insurability. In other words, no medical is required to qualify. This is an option that’s worth considering.

Renewable term life insurance is the original form of life insurance, and today it still remains the most purchased type of life insurance. While not for everyone, it certainly is a form of life insurance to consider when making your decision.


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