Term insurance is touted as one of the most cost-effective insurance schemes in the present times. Couple that with a renewable term insurance plan, and you have yourself a comprehensive long-term protection plan in place. A lot of the term insurance policies come with the renew-ability clause that allows one to rebuild the original coverage for an extended period.Read more
To understand which types of term insurance are renewable, it is important to first identify all the variants available.
Level Term Insurance – This is the most commonly bought term cover wherein the coverage amount remains fixed for the entire duration of the policy.
Increasing Term Insurance – The sum assured increases by a specific percentage on an annual basis against a constant premium amount. The premiums are usually found to be higher for such plans.
Decreasing Term Insurance – The sum assured on death decreases each year as the financial obligations of the life assured decrease. The sum assured decreases in line with EMI/mortgage payments.
TROP (Return of Premiums) Plan – It is the only kind of term insurance that comes with maturity benefits in the form of the return of total premiums paid if the life assured survives the policy term.
Now, let’s look at the types of term insurance that are renewable.
A standard term insurance policy offers financial protection against the death of the life assured. On the death of the policyholder before the end of the policy tenure, assigned nominees receive the sum assured on death that they can use to fund future needs.
Renewable term insurance is exactly like a standard term insurance cover, except with the provision of extending the cover at the end of the policy term. Such policies are a popular choice because the purchase of a new policy ends up costing more owing to age and health-related factors. However, renewing your existing cover does not require you to re-qualify for new coverage and therefore costs less.
If you want to know which types of term insurance are renewable, the answer is nearly all of them, including level term insurance, decreasing term insurance, increasing term insurance. It is important to note that renewability is a defined benefit and is not an in-built feature. For instance, one insurer's level term insurance policy may feature this benefit while similar plans by other insurers may not.
It is important that you carefully review the policy brochure and check if the policy comes with this particular provision.
It is also important not to confuse term insurance renewability with a convertible term plan. While the former extends the existing term life cover, the latter allows one to switch between different types of plans. Renewability does not allow you to change your existing term cover to, say, a whole-life insurance cover or an endowment policy, or a ULIP.
Important Points to Note Before Renewing any Type of Term Insurance Policy
Not all term insurance plans come with the provision for renewability. Every insurer has set different criteria, and, therefore, the specificities need to be clarified with the insurer itself.
Renewability does not allow you to convert your term insurance cover to a different kind of covers such as whole-life or ULIP or any other.
Renewal is only allowed till the policyholder reaches a specific age. Mostly, the maximum age limit has been set at 80, following the completion of which one cannot renew their policy.
A term insurance cover can only be extended if the policy brochure mentions the provision for renewability.
While the renewal of a term policy does not require one to undergo a medical evaluation, the premium amount might increase based on the age of the policyholder or newly acquired medical condition.
If you are in your 20s, 30s, or 40s, it will make a lot of sense for you to invest in term insurance policies that come with the renewability feature. Suppose you are a 40-years-old male with a term insurance cover for 20 years. Should you survive this policy term, it is likely to be difficult for you to get a new term insurance cover at the age of 60, given the rise in health complications with age.
At this stage, a renewable term insurance policy is your safest bet and the most economical option. You will not be asked to offer any medical undertakings, which eliminates the risk of high premiums to an extent.
Choosing a type of term insurance that is renewable is also a smart choice as it is a short-term investment and, therefore, allows you time to plan your long-term requirements.
If you have budget constraints, renewable term life insurance is a good option because the premiums are generally lower than a standard term cover. It is also a temporary solution for someone who is not ready to commit to a long-term protection plan. Specifically, one-year renewable term plans are the most convenient as it allows you to revisit your life insurance needs every year and change your preferences accordingly.
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