If a 10-Year Term Policy Contains a Renewability Provision

Life insurance provides funds to beneficiaries upon the policyholder’s death. Term life insurance offers coverage for a defined period, such as 10, 20, or 30 years. This policy type is chosen for its affordability and ability to cover financial obligations that diminish over time, like a mortgage. Some term policies include a “renewability provision,” allowing coverage to continue past the initial term without a new application process.

The Renewability Provision Explained

A renewability provision grants the policyholder the right to extend their term life insurance coverage at the end of the initial term. This allows continuation of the policy, often without a new medical examination or re-underwriting. This is beneficial if your health has changed, as it guarantees continued coverage regardless of your current health.

The policy may automatically renew, or the policyholder may need to opt-in by paying the new, adjusted premium. While the provision guarantees insurability, it does not guarantee the original premium rate. Most renewal provisions specify a limit on the number of renewals or an age beyond which renewal is no longer an option, such as age 70 or 95.

A renewability provision differs from a “convertibility provision.” Both allow coverage continuation without new medical underwriting. Renewability extends the term insurance, while convertibility allows switching to a permanent life insurance policy, such as whole life or universal life, typically without a medical exam. The key difference is that renewability maintains temporary coverage, whereas convertibility transitions to lifelong coverage.

Understanding Renewal Premiums

Premiums for a renewed term life insurance policy increase significantly upon renewal. This occurs because the premium is based on the insured’s “attained age.” As individuals age, the risk of mortality increases, and insurance companies adjust premiums to reflect this.

Your health status is not re-evaluated at renewal due to the provision. The original underwriting class (e.g., preferred, standard, or rated) from your initial policy still applies. If you were classified as “preferred” due to excellent health, that classification carries over even if your health has deteriorated. However, the primary driver of the premium increase remains your increased age.

For instance, a 30-year-old’s $500,000, 10-year term policy might cost $30 per month. If renewed at age 40, the monthly premium could jump to $70-$100. Renewing again at age 50 might further increase it to $150-$250 or more. These figures are illustrative and can vary based on the insurer, policy terms, age, and health class.

Deciding on Renewal

As a 10-year term policy approaches its end, policyholders with a renewability provision must decide on future coverage. Renewing is suitable if your health has significantly deteriorated since the original policy. A new policy might be unobtainable or too expensive due to new health conditions, making renewal the only viable path to maintain coverage without new medical underwriting. This ensures continued financial protection for beneficiaries.

However, renewal may not be financially prudent for everyone. The substantial premium increase due to attained age can make the renewed policy significantly more expensive. If financial needs have changed, such as reduced debt or independent children, the original coverage amount may no longer be necessary. In these situations, exploring alternatives can lead to more cost-effective solutions.

Consider purchasing a new term policy if you are still in good health, as this could result in more affordable rates. Another alternative, if available in your policy, is converting the term policy to a permanent life insurance policy, which provides lifelong coverage and may accumulate cash value. Review your policy document for renewability and conversion options. Consulting with a qualified financial advisor can provide personalized guidance.