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.
Term Life Insurance vs. Whole 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.
Advantages of Term Life Insurance
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.
Renewable Term Life Insurance: What it Means & How it Works
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.
The Difference Between Renewable and Convertible Term Life Insurance
Renewable term life insurance is frequently confused with convertible term life insurance. While a renewable term life insurance policy allows you to simply extend your current coverage, 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 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.
Buying Renewable Term Life Insurance
When considering your options for life insurance, you can make your life easier by contacting an independent life insurance agent. JRC Insurance specializes in all types of term life insurance, shopping 40 different providers to help you find your ideal policy at an affordable rate. Click here to get a free quote today, and visit our blog for other helpful life insurance tips and advice.