Renewable and Convertible Term Life Insurance - What is the Difference?
Did you know that term life insurance policies may be either renewable or convertible or both? What should you look for when considering buying term life insurance? Shopping for the right policy can be confusing.
Renewable term allows you to continue the policy at the end of the initial term period without providing insurability. This means that you do not have to undergo any new underwriting. Renewal of the policy is guaranteed until a certain age and represents an important feature as the insured may be uninsurable or have medical conditions that may make purchasing a new life insurance policy very difficult. Most renewable term life insurance policies incur a substantial premium increase at the end of the initial term policy and may possibly increase each year encouraging most healthy individuals to either cancel or replace the policy with a new policy if needed.
Convertible term allows the insured to convert the term policy to a permanent policy without medical underwriting. Each carrier has different rules around when it is allowable to do such a conversion – for example within the first 10 policy years or before age 65. Carriers may also restrict which permanent products can be converted to, but most allow conversion to any of their currently offered permanent products. After converting, pricing on the permanent policy will be based on your age at the time of conversion and the original rating class of the term policy. Keep in mind, permanent plans of insurance usually have higher premiums compared to the term products, but the insured health and/or need for permanent insurance may make this a very valuable option for the customer.
Term life policies that are not renewable or convertible are called non-renewable term and non-convertible term life insurance policies.
Now you know the difference between renewable and convertible term life insurance. Be certain to ask if the term life policy you are considering buying meets the needs you have now and in the future.
About the author: Ken Buccico holds a LUTC designation and has been in the life insurance business for 39 years. His wealth of experience empowers clients to make best possible decision regarding a life insurance policy. To explore the best life insurance option, contact Ken at 1-800-651-1953 or KBuccico@Pivot.com.