What is Renewable Term Insurance?

How Does a Renewable Term Life Insurance Plan Work?

Let us understand this with an example:

Suppose a 25-year-old male has purchased a renewable term plan providing coverage till the age of 60. When the person turns 60 years old, he decides that he needs coverage for another 20 years. Now, the person has two options: either renew the existing term plan or purchase a new plan. In case the person buys a new term plan, the premium rate for the new policy would be way higher than the premium rate for the renewable term plan and he would have to undergo the verification process again. When the person renews his existing life insurance policy, he does not have to go through any verification process but just pay the increased premium and get coverage for an extended period.

Benefits of a Renewable Term Life Insurance Plan?

Let us take a look at the benefits of renewable term insurance:

• Family’s Financial Security

  In case of the policyholder’s unfortunate death during the policy term, the sum assured will be paid to the family of the policyholder.

• Short Term Solution

  Purchasing renewable term insurance allows you to secure your family’s future for the short term without making a long-term commitment. You can extend the coverage duration if you need it in the future.

• Lower Premium Rates

  The premium rates for a renewable term plan start low and increase gradually with each renewal. You can also use the term insurance premium calculator to determine the approximate premium rate for your desired policy.

• Easily Renewable

  The biggest perk of term insurance renewal is that you can extend coverage without giving a medical exam or verification process all over again.

Who Should Buy Renewable Term Insurance?

Here is a list of people who can consider buying renewable term life insurance.

• People looking for short-term coverage: People who want a short-term solution and do not want to purchase a term plan for a longer tenure can buy this plan to secure their family in the meantime.

• Individuals uncertain about their retirement: Today a lot of people are uncertain about their retirement age. Some continue to work into their 60s and 70s whereas others opt-out at the age of 50. A person can increase the plan tenure in case they continue to work for a longer term.

• People with a low budget: In case the premiums for a traditional term plan is unable to fit in your budget, you can purchase a renewable term plan and can get covered for as long as you want.

• Individuals with improving health: If you are working on your health and have faith that in a few years, you can get healthier, then a renewable term plan might be a good temporary option for you. You can stay covered under the plan until you get healthy and buy a new term plan later.

Renewable and Convertible Term Life Insurance: Difference

Renewable term life insurance is often mistaken for convertible term life insurance because of their minute similarities. Both types of plans increase the policy duration, but while a renewable term plan only increases the coverage for a limited period, a convertible term life insurance converts your current term plan into a whole life term plan i.e., provides coverage till 99/100 years of age.

Both plans do not require you to reverify your profile or clear your medical exams again. It is important to note that a renewable term plan cannot be converted into a whole life term plan, but a convertible term plan can be switched into whole life at any point.

Final Thoughts

A renewable term plan offers several advantages like low premiums, short-term coverage, and the option to save on yearly taxes. Young individuals or people with low income who do not want to make a long-term commitment can buy a renewable term life insurance plan online by comparing plans from different insurers.