How Does Renewable Term Life Insurance Work?

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Renewable-term life insurance policy is a financial tool to ensure the insuree’s family will be cared for in the event of their death. It has a specified duration or term during which their loved ones will be given a death benefit if an insuree dies.

It’s more affordable than a permanent life policy but comes with no cash value and no payout once the term is over. However, they can be renewed if a term expires — you can extend your coverage without going through a medical exam again.

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How Does a Renewable Term Life Policy Work?

It’s simple. When you’re signing up for a term life policy, you can accept a renewable term clause that will let you renew your policy once it is expired.

Here are a few other things you need to know:

It’s an agreement

Consider this policy an agreement between an insurer and the insured person. You will be required to pay a premium for a specified period of time. In return, the insurer will pay your beneficiaries a death benefit during that period in the event of your death.

You have to go through an application process.

Before you can buy a term policy, the insurance company has to assess how much of a risk you are. All of this will be considered in the underwriting process, where you’ll be asked for a medical exam and history, including occupation, lifestyle, hobbies, and more.

You’ll have to choose a term duration

A renewable term insurance policy needs a term. You’ll have to choose a long enough duration to suit your needs. For example, if you have children, you should choose a time that considers when they’ll be out of college and independent. Until then, you’ll have to pay a specific amount each month.

You’ll need to decide on a death benefit

Get coverage that will easily care for your family’s needs. The death benefit you get is mostly more than the amount your beneficiaries will need.

You’ll have to name your beneficiaries

Lastly, you’ll have to pen down your beneficiaries. It doesn’t have to be one person, either. You can give some death benefits to your spouse and divide the rest between your children. Also, your beneficiaries don’t have to be family; you can choose a friend, a trust, or a charity as well.

Different Renewal Term Policies to Consider

Once you start considering term policies to buy, you need to consider all the different types out there. These include:

Level Term

This is the most common type of insurance policy where your premium remains constant for the entire duration.

Annual Renewable Term

This policy covers a year and allows you to skip the medical exam when renewing. Initially, your premiums will be lower, but over time, you’ll pay more than a level-term policy.

Return of Premium (ROP)

This insurance policy pays back your premiums (or a portion) if you live through the end of the specified duration. However, it’s more expensive and very dependent on your financial status.

Guaranteed Issue

Policies under Guaranteed Issue don’t require a medical exam. This means the insurer considers you high-risk and may charge you higher premiums accordingly. The policy may also not pay the benefit for the first few years.

Keeping Convertibility in Mind

Life is constantly changing, and it’s good to have all bases covered. Convertibility allows you to convert your term insurance to permanent life insurance later on without going through a medical exam.

Why would you consider this? Because if you end up with a severe health problem, it’ll get tough to change your policy. Plus, a permanent life policy from a reliable company like Franklin Life & Annuity gives you cash value and life-long coverage.

Determining the Cost You Need

You’ll have to evaluate how much money your family will need to support themselves in case they lose you. When you’re not there, life insurance can help them, but you’ll have to determine how much they’ll need.

Here are a few rules to help you:

  • Choose ten times your current salary. It will provide some cushioning for your loved ones.
  • Choose ten times your salary and consider college expenses to ensure your children can get opportunities.
  • Calculate using the DIME formula.
  • Use the Human Life Value philosophy.

Work with Us

Get insured with a reliable life insurance company today.

At Franklin Life & Annuity, we provide clients with premier insurance services that come with funeral and health service plans with a coverage of up to $30000.

Our burial and final expense insurance policies ensure your family will be taken care of at times of financial need.

Get a life quote with us.