Renewable Term Life Insurance: What's Good And Bad With These Types Of Policies | Investments

Renewable Term Life Insurance: What's Good And Bad With These Types Of Policies

Written by Lorraine Benham

Monday, 07 June 2010 14:11

by LorraineBenham

When you want to buy Life Insurance how do you make up your mind what type of policy to buy? You will realize quickly that all policies have a dual character, they are what you want in some respects and not others. Renewable term life insurance is a fairly easy to understand type of policy. You'll be able to work out what works for you and what doesn't and you'll discover it has real advantages for you.

What benefits you get when you buy this type of policy

As the term renewable implies, the policy owner of this type of life policy can renew the policy yearly rather than making a lifelong commitment. This is a real advantage if there are special periods in your life when it's important to have a life policy. Your priorities will change with age and changing responsibilities and then you can drop the policy or keep it going.

The term of a renewable term life policy can be annual or you can take it out for a fixed period from 5 to 30 years. Having the option to renew you policy annually gives you a lot of flexibility. If however you continue the annual renewal over a long period of time the premiums you pay will increase. This is because you have a higher risk of mortality the older you get. If you take out a long term policy then the cost of premiums is spread out and will not rise in the same way though as soon as that term is up and you then choose to renew again, the premiums will rise.

Your insurer will set the premiums for your renewable term life policy with regard to how healthy you are at the time the policy is taken out. However no matter what medical conditions you develop subsequently you will still be fully covered. In other words as an existing policy owner you then have a big advantage as you may not get insurance from another insurer once you develop a serious medical condition.

The big, big advantage of a renewable term insurance product is the nature of the contract. Once the contract is set up, the insurer cannot cancel it unless the premium is not paid. As stated in the previous paragraph, this is very, very advantageous for the policy owner if he or she develops a major illness.

You may want to take into account that there is another advantage to you in taking out a renewable term life policy. In some policies of this kind you can turn the policy from a term policy to a permanent life policy. There may be a time limit during which you can make this conversion so get all the details possible about the policy you are thinking of purchasing.

The downside of this type of policy

Not everything about a renewable term policy is advantageous. There is a death benefit available to your heirs if you die but they do not get the accumulated value of the premiums you have paid. If you stop paying premiums you will not receive the value of the premiums paid. and when you die your heirs will receive only a death benefit and will not receive anything related to the premiums you have paid.

Because there are advantages with the flexibility of these polices it's a good idea to get a quote from a good insurance company on the level of premiums you would pay to own one. Insurance companies compete to give good quotes on this insurance product so expect a good price. Take care to check what premiums you will pay in relation to the term of the policy.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

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