Renewable term life insurance: What it is, how it works

If you’re looking into life insurance, you probably know that term life is a simple, cost-effective option. However, there are several types of term life policies, each with its own benefits and drawbacks. Here, we’ll look at one of the most popular –– renewable term life insurance –– and help you decide if it’s right for you by explaining:

• What is renewable term life insurance

• Key advantages of a renewable term policy

• Who should consider this kind of coverage

• Renewable term life insurance vs. convertible term life insurance

What is renewable term life insurance, and how does it differ from a level term policy?

Term life insurance covers you for a specific period of time, known as the policy’s “term.” If you pass away during that term, a death benefit is paid to your family or other beneficiary. However, unlike a permanent whole or universal life policy, term coverage doesn’t last your entire life, and it doesn’t build any cash value.

Typical “level term” policies last 10, 20, or 30 years. After that, to continue having life insurance protection, you must apply for a new policy.* Rates will likely be higher because you'll be older, and typically, you'll have to get another medical exam. A lot can happen in 10 or 20 years, and if you develop a health issue — which you may not even know about when you apply — that can further raise your rates. And a severe health issue could make it impossible for you to get any substantial amount of coverage.

By contrast, renewable term life insurance — sometimes called guaranteed renewal term life insurance — allows you to renew your policy at the end of the term without undergoing a new medical exam. Policy terms also tend to be shorter, such as five years, and some companies — including Guardian — even offer yearly renewable term policies that let policyholders fine-tune their coverage length. But there’s a cost to this term flexibility, in a very literal sense: rates can and typically do go up with each policy renewal. For younger policyholders, rate hikes tend to be incremental, but with age, the premium increases tend to become more dramatic.

Advantages – and one disadvantage – of renewable term life insurance

^{Renewable term life insurance offers several significant advantages — and one serious drawback.}

Is renewable term life right for you?

Typically, renewable term life is a good choice for those who need life insurance but don’t want to commit to permanent coverage or even a long-term (10-, 20-, or 30-year) level premium term policy. By choosing renewable term life, they can get the short-term, temporary coverage they need for a relatively low premium. Then, at the end of the term, they can reassess their situation and either renew or let the coverage lapse. Renewable term life may be best for:

• Those with limited financial resources: If you need life insurance coverage now, but also need to hold expenditures down until your financial situation improves, renewable term life may be the right choice. By choosing renewable term life, you'll typically pay lower initial premiums than with a 10-, 20-, or 30-year-level term policy. And as each term expires, you can reassess your finances and decide whether to renew or move on to long-term coverage.

• Those anticipating a major life change: If you’re planning to get married or take a new job in the foreseeable future, you may want to consider renewable term life as a way to get short-term coverage prior until your situation is clearer. At that point, you can reassess your life insurance needs and options.

• Those planning to quit smoking: Smokers have higher life insurance rates. If you use tobacco but plan to quit in the near future, it probably makes sense to choose a renewable term life policy for the time being. Why? As a smoker, you’d probably have to lock in very high premiums to secure a long-term level premium policy. A renewable term policy can act as an cost-effective stopgap solution until you’ve quit for good (providers typically want to see that you haven't used tobacco for 1-3 years) and are eligible for significantly lower non-smoker rates.

Renewable term life vs. convertible term life

While renewable term life will allow you to maintain your coverage up to the insurer’s age limit (often 65 or 70 years old) without submitting to a new medical exam, it doesn’t really provide permanent life insurance protection. However, a few renewable term policies – including those from Guardian – are convertible. Convertibility is a policy provision that allows you to convert your term insurance policy into a whole life policy that provides life-long protection without undergoing a new medical exam. Guardian lets you convert renewable term insurance coverage to a permanent life policy at any point in the first five years and offers an optional Extended Conversion Rider, which lets you do so for the duration of the policy.¹ And our level term policies provide the same features.

If you’re not sure what type of coverage is best for you, we can help

Considering life insurance coverage, but can’t decide between the various types of term or permanent life insurance (whole or universal life)? Guardian can connect you with a financial professional who will listen to your needs and recommend different life insurance options to fit your needs and budget. But don't put it off: the longer you wait to get life insurance, the more you're likely to pay – no matter what kind of policy you get.