What is guaranteed renewable term life insurance?


"We offer guaranteed renewable term life insurance!" You must have come across this phrase many times on TV commercials and adverts. However, don't let yourself fall into the marketing trap of insurance companies, as their message can be very misleading.

What is guaranteed renewability?

It refers to the insured individual's right to buy additional life insurance coverage without having to show evidence or proof of insurability. Usually, these additions can be purchased at:

  • stated times,
  • on policy anniversaries specified under contract like every 5th year up to the stated maximum age and,
  • upon the birth of an insured's child.

Guaranteed Insurability Age Limits

For most insurance companies, guaranteed insurability age limits are 40 and 45.

Annual Renewable Term Insurance

This policy may offer the best coverage for individuals who cannot afford the costly premiums of permanent life policies and do not want to go through the process of having to apply for a new term policy each year. In this policy, coverage is renewed each year as long as the policyholder pays the premiums. It is simple, affordable and accessible.

Advantages of renewable term life insurance

  • Low cost – Being budget friendly is the major appeal of renewable term life insurance.

  • Renewable policy – The policy will specify the renewal term and also provide the maximum number of times it can be renewed along with the maximum age.

  • Budget-friendly asset protection – For individuals with mortgages or assets tied to loans, this policy offers a chance to pay off those debts in the event of death of the insured.

  • Re-qualifying Not required – There is not need to get re-qualified on a renewal. Even if an individual becomes terminally ill, the insurance company cannot decline the application for renewal.

Disadvantages of a renewable term life insurance

  • Coverage is only for a limited term – You are only insured for a relatively short period of time.

  • Costly during later years – Premium rates typically become expensive as the insured gets older.

  • No cash value component – You do not get to accumulate the money you put in the policy. In the event you do not die, you get nothing in return when the policy ends.

When should I opt for annual renewable term insurance?

If you are young, in good health and looking for short-term protection that fits a limited budget, then this policy is a good option. It will also fit in to those who do not want the inconvenience and hassle of having to prove they are insurable every time they renew.

What should I look for in a renewable term policy?

  • The policy term – Generally, shorter terms come with better rates.

  • Guaranteed level premiums – look for policies that guarantee that rates are going to be level throughout the term period.

  • Conversion to cash value – look for policies that have this feature especially those that will not require you to go through a medical examination when you convert.

Difference between optionally renewable and conditionally renewable?

Optionally renewable – the insurance company reserves the right to end coverage during the policy's anniversary or during premium payment due dates.

Conditionally Renewable – the insured can seek renewal of policy but subject to the insurance company's conditions. This usually applies when the insured has made many claims or appears to be risky.

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