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Should you buy a Renewable Term Life Policy?

Whether you should buy a renewable term life insurance policy depends on your individual circumstances. It can be a suitable option for short-term coverage needs and flexibility.

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Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

Renewable term life insurance policies are a type of life insurance that provides coverage for a set term. What sets them apart from other types of life insurance is their unique feature of being renewable, allowing policyholders to extend their coverage beyond the initial term without having to go through additional underwriting or providing proof of insurability.

A term insurance policy is a life cover that provides death benefits to the nominees of the policyholder if the insured dies before the tenure of the plan ends. If you survive the policy term and opt for a new one, you will end up paying a higher premium for a fresh plan. This is where a renewable term insurance policy can help you. With this option, you do not have to re-qualify to buy the policy.

What is a Renewable Term?

Life is uncertain, and protecting loved ones from financial burdens in the event of an unexpected death is a responsible step toward securing their future. One popular option for life insurance coverage is a renewable term policy.

The renewable term policy is designed to provide flexibility to policyholders as their life circumstances change. It offers the peace of mind of having coverage for a specific term while providing the option to extend the coverage if needed. Let’s take a closer look at how renewable term works.

How Renewable Term Insurance Works?

Renewable term insurance is a type of life insurance that provides coverage for a specific term. What makes it unique is the option to renew the policy at the end of the term without undergoing a medical examination or providing additional proof of insurance. This renewable feature allows policyholders to continue their coverage beyond the initial term, providing them with peace of mind and financial protection for the future.

The way renewable term insurance works is relatively simple.

  • When you purchase a renewable term insurance policy, you pay a premium to the insurance company in exchange for coverage during the specified term.
  • If you pass away during the term of the policy, the insurance company pays out a death benefit to your beneficiaries tax-free. This death benefit can be used to cover various expenses, such as funeral costs, outstanding debts, mortgage payments, and other financial obligations, ensuring that your loved ones are protected in the event of your untimely passing.
  • If you survive the policy, you now have the option to renew your insurance plan without going through the additional hassle of paperwork or medical exam.

It is important to note that renewable term insurance is not a one-size-fits-all solution, and it may not be the best option for everyone. The premium for renewable term insurance may increase with each renewal, and it may not be the most cost-effective option for individuals who need coverage for a longer period or have specific financial planning goals. However, for those who are looking for affordable and flexible coverage for a specific term, renewable-term insurance can be an excellent choice.

Types of Renewable Term Insurance

Renewable term insurance is a type of life insurance that offers coverage for a specific term but with the option to renew the policy at the end of the term. This type of insurance is designed to provide financial protection for your loved ones in case of your untimely demise.

Level Renewable Term Insurance

Level renewable term insurance is the most common type of renewable term insurance. With this type of policy, the premium remains the same for the initial term, and the policy can be renewed at the end of each term for another term without the need for a medical exam. The death benefit, which is the amount paid out to the beneficiaries upon the death of the insured, also remains level throughout the initial term.

Decreasing Renewable Term Insurance

Decreasing renewable term insurance, also known as mortgage protection insurance, is a type of policy where the death benefit decreases over time while the premium remains the same. This type of policy is often used to cover a specific debt, such as a mortgage or a loan, where the amount of coverage needed decreases as the debt is paid off. The policy can be renewed at the end of each term without a medical exam, but the death benefit will continue to decrease.

Convertible Renewable Term Insurance

Convertible renewable term insurance allows policyholders to convert their term policy into a permanent life insurance policy, such as whole life or universal life, without the need for a medical exam. Convertible renewable term insurance typically has a higher premium than level or decreasing term insurance due to the option to convert to permanent coverage.

Renewable Term Insurance with Riders

Riders are additional provisions that can be added to a term insurance policy to provide additional coverage or benefits. There are several riders available for renewable term insurance, such as the accidental death benefit rider, critical illness rider, and disability income rider, among others. These riders can provide additional protection beyond the basic death benefit and can be added at an additional cost.

Return of Premium Renewable Term Insurance

Return of premium renewable term insurance is a type of policy where the premiums paid during the term are returned to the policyholder at the end of the term if the policy is not renewed. This type of policy combines the benefits of term insurance with a savings component, as policyholders have the option to receive a refund of their premiums if they outlive the term of the policy. Return of premium renewable term insurance typically has higher premiums compared to other types of term insurance, but it can provide a return on investment if the policy is not renewed.

Benefits of Renewable Term Insurance

With renewable term insurance, you can continue to have coverage even if your health condition changes, which can be a significant advantage as you age.

So, what are the benefits of renewable term insurance? Let us delve into the details:

Flexibility

One of the significant benefits of renewable term insurance is its flexibility. It allows you to adjust your coverage to match your changing needs. You can choose a term that aligns with your financial goals, such as paying off a mortgage or sending your children to college. You also have the option to renew the policy at the end of the term, convert it into a permanent policy, or let it expire if you no longer need coverage. This flexibility ensures that your insurance coverage remains relevant to your evolving financial situation.

Cost-Effective

Renewable term insurance is known for its affordability compared to other types of life insurance. Premiums for renewable term insurance tend to be lower than permanent life insurance policies because they only provide coverage for a specified term, and the premiums are based on your age and health at the time of purchase. This makes it an excellent option for those on a budget or looking for temporary coverage.

Renewable

One of the standout features of renewable term insurance is its renewable option. This means that you have the option to renew your policy at the end of the term without going through a medical exam or providing evidence of insurability. This can be particularly beneficial if your health has changed during the term, as it allows you to continue your coverage without facing the risk of being denied or paying higher premiums due to a decline in health.

Peace of Mind

Knowing that your loved ones are financially protected in case of your absence can bring peace of mind. Renewable term insurance provides that sense of security by ensuring that your beneficiaries will receive a death benefit if you pass away during the term of the policy. This can provide a safety net for your family’s financial needs, such as paying off debts, covering daily expenses, or funding future financial goals.

Renewable Term Life vs Convertible Term Life

The renewable term policy allows you to extend the cover without having to re-qualify for the plan. If you are insured by a convertible term plan, you can change it from a term cover to a whole-life policy. The pure form of renewable term policy cannot be converted to any other type of coverage. When buying a term life insurance plan, make sure that you keep these aspects in mind. This way, you can be protected by a policy that suits your particular needs effectively.

Feature

Renewable Term Life

Convertible Term Life

Definition

Provides coverage for a specific term. Renewal option available at the end of the term without having to reapply for coverage.

Provides coverage for a specific term. Option to convert the policy to a permanent life insurance policy without a medical exam.

Premiums

Typically lower initially, but may increase at renewal based on the policyholder’s age and health status.

Generally higher compared to renewable term life due to the conversion option and potential for permanent coverage.

Renewal Process

A policy can be renewed for another term without having to undergo a medical exam or provide evidence of insurability. Premiums may increase at renewal.

No need to renew the policy as it can be converted to a permanent life insurance policy without reapplying for coverage.

Conversion Option

Not available. Policyholder would need to reapply for coverage and undergo a medical exam to convert to a permanent life insurance policy.

Available. Policyholders can convert the policy to a permanent life insurance policy without a medical exam or providing evidence of insurability.

Flexibility

Limited flexibility as the policyholder needs to renew the policy at the end of the term, and premiums may increase.

More flexibility as the policyholder has the option to convert to permanent coverage without reapplying for coverage.

Policy Customization Options

Limited customization options as the policy only provides coverage for a specific term without any additional riders or options.

Typically offers more customization options, such as additional riders or options, depending on the policy and insurance company.

Suitability

It may be suitable for individuals who need coverage for a specific term and are willing to undergo medical underwriting at renewal.

It may be suitable for individuals who want the flexibility to convert to permanent coverage in the future without undergoing a medical exam.

Conclusion

Purchasing a renewable term life insurance policy can be a wise and strategic decision for individuals seeking flexible and affordable coverage; with the ability to renew the policy for an extended term without having to undergo additional medical underwriting, renewable term life insurance offers peace of mind and financial protection for loved ones. By carefully evaluating your personal circumstances, financial goals, and values, you can determine if a renewable term life insurance policy is the right fit for you.

    Key takeaways

  • The renewable term policy is designed to provide flexibility to policyholders as their life circumstances change.
  • Renewable term insurance is a type of life insurance that provides coverage for a specific term.
  • Such policies are gaining popularity due to the added layer of flexibility and affordability they offer.
  • Comfortable insurance experience, hassle-free policy tenure extension, and increased peace of mind are some of the top benefits of opting for renewable term life insurance.

Kotak e-Term

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Features

  • Life Cover till 85 years for Life & Life Secure Option
  • 3 Payout Options
  • Special Rates for Women
  • Option to exit the policy with premium refund at the age of 60*
  • Special Rates for Non-Tobacco Users
  • Free Medical Check Up every 5th year**

Ref. No. KLI/22-23/E-BB/2435

T&C

- A Consumer Education Initiative series by Kotak Life