A term life insurance policy is one of the best ways to protect your family against possible financial turmoil in the event that you passed away. It is one of the best insurance products and offers many advantages over the often pricier permanent policy.
Many of the latest term life insurance policies come with a feature called “guaranteed renewable,” which means that they give you the right to renew the policy at a price that’s pre-specified when the policy is about to expire. The advantage is that you don’t need to go through any additional underwriting or maybe even show proof of good health to renew it.
The best way to explain how it works is with an example. Let’s say that you purchase a 10-year term policy. The life insurance policy will have a monthly and an annual rate that needs to be paid over 10 years. It will also specify your monthly and annual payments for 10-20 years and 20-30 years etc. if you want to renew it every 10 years. The guaranteed rates mean you don’t pay more even if you end up getting sick before the policy’s term ends.
Why Are Renewal Rates High?
Most life insurance companies take a very strategic approach to just about everything, including selling life insurance. The company will never create a product that will be highly risky to attract customers. That’s why the pre-specified term insurance renewal rates are set super high, which essentially says, “you can renew after 10 years without medical evidence, but because there is no medical evidence involved, we’ll automatically assume your heath has become bad, and that’s why we’ll price the renewal super high.” That’s why a 10-year policy can have rates up to 20x higher than the initial premium.
Should You Renew Your Life Insurance Policy?
We honestly think it depends on what it means to you. Many people will discover that renewing their policy is a terrible idea because it is prohibitively expensive. Unless your health becomes worse to the point where you are uninsurable, it is only in that instance that renewal would be a good idea.
If you want to renew your life insurance policy, there are a couple of things you need to know:
When will the policy expire? – Check the terms to see when it is set to expire and set a reminder for 3 to 6 months prior.
Know how your needs have changed – It makes sense to reassess your insurance needs to understand how much coverage is needed and for how long. If you currently have a 20-year term, you need to think about how things are different. Most people will not need the same coverage they had earlier.
Apply for a new policy – If you still need coverage and your needs have changed, perhaps find out whether you can replace your expiring policy in whole or in part. If you no longer need coverage, it allows you to put some cashback in your pocket.