Life and Health Insurance · Life Insurance · 6 min read
Renewing and Converting Term Protection
- Explain how the renewability provision allows a policyowner to extend term life insurance without evidence of insurability.
- Describe how the convertibility privilege operates, including the differences between attained age and original age conversion methods.
- Compare renewal and conversion features, their cost implications, and their respective policy deadlines and limits.
Understanding the Renewability Provision
Term life insurance provides pure death benefit protection for a specified period of time. When that time ends, standard term coverage expires unless the contract contains a renewability feature. A renewable term policy grants the policyowner the right to renew coverage at the end of the term without proof of insurability. Evidence of insurability is information an insurer uses to decide whether to issue coverage, such as health history, medical records, or an examination.
Renewability helps you keep coverage if your health declines, provided you renew within the policy limits and pay the required premium. Even a serious medical diagnosis, including a terminal illness, does not by itself prevent renewal while the contractual renewal right is in effect, as long as you pay the required premium. Standard term life insurance has no cash value, regardless of how often it is renewed, though some return-of-premium designs may provide a surrender value.
Renewal premiums are generally based on the insured person's attained age and the policy renewal rate schedule. Attained age is the insured's age at a specified point, such as renewal or conversion, determined under the policy terms. Because mortality risk increases as people age, renewal premiums often increase with age, but the exact amount and timing of increases depend on the policy rate schedule. Annually renewable term insurance offers renewal each year within the policy limits, usually with premiums that rise as the insured ages. Level term policies can also include a renewal provision that allows an extension after the initial level period ends.
Renewable term policies generally do not permit an increase in the death benefit upon renewal without new evidence of insurability. Furthermore, most renewable term contracts specify a maximum age beyond which the policy may no longer be renewed. The contract states when the renewal right ends, and the maximum renewal age varies by contract.
Common mistakes
- Confusing renewability with convertibility: renewability extends temporary term coverage, while convertibility exchanges temporary coverage for permanent protection.
- Assuming an insured who develops poor health can be denied renewal: contractual renewal rights cannot be denied based on health changes as long as the policy is in force and premiums are paid.
- A conversion privilege generally limits the amount converted to the eligible term death benefit; obtaining additional coverage is subject to the insurer's terms and may require evidence of insurability.
- Assuming standard term insurance builds cash value after multiple renewals: standard term insurance provides pure death benefit protection and never develops cash value regardless of how many times it is renewed.
Key points
- Renewable term insurance allows the policyowner to extend coverage at the end of the term without providing evidence of insurability, even if health has declined.
- Renewal premiums follow the policy's rate schedule and typically reflect the insured's age at renewal; the amount and timing of increases depend on the contract.
- Convertible term insurance allows the exchange of temporary term coverage for permanent insurance, such as whole life or universal life, without proof of insurability.
- Conversion premiums may use attained age or, if the policy offers it, original age; original-age conversion generally requires a catch-up payment under the policy terms.
- A standard term conversion exchanges eligible term coverage for permanent coverage, generally up to the eligible term death benefit. Additional coverage may require underwriting unless a separate contractual right allows an increase without it.
- Renewal and conversion rights are subject to policy terms, which may include deadlines or maximum ages; neither right generally can be exercised while the policy is lapsed.
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