Are you shopping for term life insurance? If you’re doing so without the guidance of a life insurance agent, the choices can be overwhelming. Likewise, the fine print can be mind-numbing.
One of the options you will come across is renewable term life insurance. While it may sound self-explanatory, it’s important to know exactly what “renewable” means.
You must also understand the difference between term life insurance and whole life insurance in order to make a sound decision on which type of policy you buy.
In this quick guide, we’ve explained the difference between term and whole life insurance, and provided some further insight into renewable term insurance.
Quick Article Guide:
- Term Life vs. Whole Life Insurance
- Advantages of Term Life Insurance
- Renewable Term Life Insurance: What it Means and How it Works
- The Difference Between Renewable and Convertible Term Life Insurance
- Buying Renewable Term Life Insurance
Term life insurance provides a death benefit (money paid to your spouse or heirs to cover income loss and assets in the event of your death) at a fixed premium, for a set period of time (your term, which may range from 5-30 years). Term life provides the bare essential protection you need, with minimal complexities.
Whole life insurance, also referred to as permanent life insurance, provides lifetime protection at fixed periodic premiums, and builds cash value in addition to your death benefit.
There are many different types of whole life insurance, from indexed universal life policies embedded in stock market indices to variable universal life, which is actually invested in the stock market.
Whole life insurance is far more involved than term life. Like any investment, the cash accumulation account that comes with a whole life policy brings with it a market risk. And, the cash accumulation component is often mistaken for a death benefit—many people don’t realize that the money in this account is actually absorbed by the insurance company upon the insured’s death.
Term life insurance, on the other hand, gives you the same coverage you seek in a whole life policy, without the “bells and whistles.” The benefits of term life insurance include:
- Affordable coverage
- Flexible options
- A fixed rate for a set period of time
- No startup costs
- No surrender charge
- No hidden fees
- The freedom to cancel or change your policy at any time
Unlike whole life insurance, term life insurance allows you to determine your current needs and seek coverage accordingly.
Most financial advisors will recommend getting a policy that is renewable. The majority of term life policies are indeed renewable. However, not all are, so be sure to check for renewability in your policy’s Table of Contents.
The primary reason why renewability is so important isn’t necessarily because you are going to want to renew your policy once your term is up. In fact, it’s usually not a financially viable option.
But, if your health deteriorates and you become uninsurable, the option to renew enables you to keep your current coverage (though likely at a much higher premium) without having to re-qualify, whereas you might otherwise be left without life insurance coverage altogether.
Essentially, renewable term life insurance provides peace of mind for the worst-case scenario that you were to become terminally ill toward the end of your term.
Keep in mind that your policy is set to renew automatically—if you do not wish to renew, you need to proactively drop your coverage with your carrier.
Otherwise, you might be in for an unpleasant surprise when your first renewal bill comes in the mail, being that renewal premiums are typically very high. However, if this does happen, many carriers are willing to work with you and usually provide a refund if it’s requested in a timely manner.
Renewable term life insurance is frequently confused with convertible term life insurance.
A renewable term life insurance policy allows you to simply extend your current coverage at the end of term at an annually increasing rate.
Having a convertible term life insurance policy means that at any point during your term or before your 70th birthday (whichever comes first), you have the option to convert your term life coverage to whole life coverage.
The two are similar in that the insured, regardless of his or her health, does not have to re-qualify or pass additional screening. They differ in that renewable term life cannot be switched to whole life, while convertible term life can.
Still not sure which life insurance policy will best fit your needs? Don’t worry, we’re here to help!
At JRC Insurance Group, we have helped thousands of families and businesses with their life insurance needs, and we can help you too! Our agency is licensed in all 50 states and we’re independently owned and operated.
As a non-partial, no-fee brokerage, our goal is match our clients with the best life insurance options available by shopping and comparing rates from more than 45 highly-rated insurers. By having access to dozens of companies and their guidelines, we’re able to save our client’s time and money.
Most importantly, our services as completely free, and there is no cost to apply for coverage. Give us a call toll-free today at 855-247-9555, or you can request a free quote online to compare rates and options from dozens of insurance companies in less than a minute.