The Terms Of A Renewable Term Life Insurance Policy: Why They Really Matter To You

Most people buy their first term policy relatively early in life. At that point, they don’t purchase a policy to cover themselves all the way into their “golden years.” That’s because when you’re only 30 or 35, buying a policy with a term that runs into your 60’s or 70’s is quite expensive. And when you're young, you’re probably not sure what your financial needs will be in later years. Insurance Against A Health Problem The odds are good that when you’re much older, you may need less insurance than you do now, particularly if you have a young family to cover. This is a key reason many younger insurance buyers get a policy that covers them into middle age, and assume that when it expires they will buy another policy that fits the financial profile they’ve evolved at that time. Unfortunately, if you have a health event during the term of your first policy, you may find it difficult or even impossible to buy a new policy later on to cover your dependents through the later phases of your life. That’s when it suddenly becomes important for you to have a renewable term life insurance policy. In most cases, you'll be able to renew your policy without having to take a physical examination (as long as you do the renewal before the policy expires). That’s very important because it means you have a way of keeping your insurance coverage alive even if you have a very serious health problem that will stop many insurors from giving you a new policy. Pros & Cons Renewal is almost always expensive. But because it might be your only option at some point in the future, you want to look into how it will work on any term life insurance policy you buy. It’s important to either ask your insurance agent about this in-depth or do your own research, because renewal terms can vary a lot from one policy to another. The cost of renewing your policy can be extremely high. Here’s an example: An “illustration” or price quote I received from a major insurer for an $800,000. 20-year term life insurance policy covering me from age 57 to 77 showed an annual premium of about $3,700 per year. It showed that if I wished to renew it at age 78, the annual premium would rise to a whopping $117,000. per year. Another illustration of a 10-yr 800,000. term policy showed a annual premium of about $2,000. per year. Renewing it for an 11th year, at which time I would be 68, would cost over $44,000., and that annual premium would rocket to over $350,000. per year when I reached the age of 73 (these numbers are used only for illustration, and are based on my own health and family history. Don’t assume they will apply to you). The prices are high because I’m now 57 -- I’m old! But while the numbers would be lower for a person trying to renew his or her first policy in their forties, they still illustrate what a big percentage jump you can see on your premium if you renew it. The insurance companies know that this option will generally only be attractive to someone with a real health problem, and they charge a heavy premium for it. Find out how long a term you can renew your policy for, and if the premiums will be guaranteed at the same level for that period. There are some policies that allow you to renew for a limited number of years, but then require that a physical exam be taken to qualify for coverage beyond that point. Ask if there is a point where you will lose the right to renew your policy - you clearly don’t want to find out that your renewal window has closed as you near the end of your policy term. While it may not be a tremendously attractive option financially, you want to be sure that you at least have a renewable term life insurance policy. It’s worth the effort to learn the details of how it will work now rather than later.