Convertable or Renewable Term Life Insurance
Term life insurance. A term policy pays a death benefit if the insured dies within the specified time period or term of coverage stated in the contract. If the insured survives the term, the policy expires without any value since such contracts generally have no cash value or dividends. A term policy’s lack of cash value and limited period of coverage results in premiums that are initially lower than those of cash value insurance. The price to pay, however, is that a term policy’s premiums dramatically increase as the insured grows older. In addition, term policies usually provide a level death benefit, but term with a gradually decreasing death benefit (decreasing term) is also common and a way of keeping premiums level as the insured ages. Further, a term policyholder has the right, under certain policies, to renew the coverage for additional “terms” or convert it to (exchange it for) a cash value policy without evidence of insurability.
. Renewable term. Term policies may provide coverage for a period as short as one year but usually provide protection for a set number of years or to a stated age. In addition, as previously stated, term policies may be renewable. This means that the policyholder has the contractual right to extend the coverage for successive terms without evidence of insurability. The premiums are level for a specific duration of coverage but increase with each renewal to reflect the insured’s increased age. Finally, the right to renew is generally limited to a specified age such as 65 or 70. It should be noted that if the policy is not renewable, the policyholder has no right to continue the coverage and must apply for a new policy with evidence of insurability. In that regard, as an individual ages, the chances that he will remain insurable or be able to obtain coverage at a price he is willing and able to pay decreases. Consequently, the right to con?tinue the coverage at a predetermined price can be an extremely valuable right.
Convertible term. Term insurance can be convertible, which means that the policyholder can exchange the term coverage for a cash value policy without evidence of insura?bility. This adds a great deal of flexibility to an individual’s overall insurance plan. That is because an individual who has a permanent need for coverage but who cannot afford cash value insurance can start with a term policy and convert it to a cash value (permanent) policy when his financial situation improves. Further, convertibility is a way of protecting against the loss of insurability as the covered individual ages. As previously noted, a renewal provision provides similar protection but the limit on the age at which most such policies can be renewed makes having coverage when needed less certain than occurs with a conversion feature. Caution should be exercised, however, in that the right to convert is often shorter than the maximum duration of the policy.
A resouce for understanding companies, policies and insurance terms is www.bluelifeinsurance.com . You should understand the basic variety of insurance products that are available, before purchasing any insurance product.
Dan T Brown
www.bluelifeinsurance.com
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