Renewable term life insurance guarantees you the option of renewing your life insurance on an annual basis - it just doesn't guarantee that you'll be paying the same rates.
In order to understand how renewable term life insurance works, you need to know about the 2 different types of term life insurance policies:
- Level Term Life Insurance
This is the most common form of term life insurance. Just like it implies, term life insurance rates stay the same for the term length that you specify, usually 10, 15, 20, 25 or 30 years.
- Annually Renewable Term (ART) Life Insurance
Premiums for "annually renewable" term life insurance start out lower than level term life insurance, but your premiums increase slightly every year with age. This type of insurance is designed for short-term insurance needs (less than 5 years in our opinion)
Let me be clear:
Most level term life insurance policies have a "renewable" option.
Your life insurance company will offer you coverage after your term expires without re-qualifying, but the rates aren't guaranteed (and A LOT more expensive).
Common Misconception of Renewable Term Life Insurance
Many consumers ask us if the policy in renewable after the level term expires and the answer to that question is YES, which at the surface sounds great. However your life insurance payments will go through the roof.
Don't count on using the renewable option at the end of your term. It may sound attractive that your term life insurance is renewable, but the new premiums are typically too much for anyone to afford. On top of the that, those high premiums will go up every year.
Most people are better off re-applying for new coverage when their term life insurance policy expires OR if you can't qualify because of your health, converting your term life insurance policy to a permanent one.
The best thing you can do when purchasing term life insurance is review your policy every couple years. As your life changes, so will your life insurance needs. Look at your options and adjust your life insurance program as needed. Doing this will make it so you don't even have to worry about using the renewing your term life insurance after expires.
Bottom Line: If you're looking to purchase renewable term life insurance, just buy a level term life insurance policy and review your life insurance program every couple of years. Don't rely on renewable options - they won't be pretty.
You can compare instant term life insurance quotes here.