What Is a Renewable Term Insurance Policy?

• 26th Nov 2021
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A standard term insurance policy expires at the end of a specific term. But, if you have purchased a renewable term insurance policy, you can renew the same at the end of the policy term. Based on your insurance needs, you can extend the policy tenure for as little as one year or more.

A renewable term insurance plan allows you to renew the policy without going through the hassles of submitting the documents, filling the application form, undergoing a medical test, etc. However, as you renew the policy, the premium may go up every year or once a few years when you attain a specific age.

How does a renewable term insurance policy work?

A renewable term insurance policy works like a standard term plan, except there are a few differences. When you buy renewable term life insurance, the insurance company will decide your premium based on your age at the time of purchasing the policy, health condition, and sum assured amount.

Let us understand the working of renewable term plans better with the help of an example.

Let us assume that Miss. Dubey, a 25-year-old woman, purchases a renewable term plan with a sum assured of Rs. 1 crore. The plan she buys offers her coverage until she attains the age of 65. Miss. Dubey pays an annual premium of Rs. 10,000 for the coverage.

Now, her life cover will continue to remain valid until she reaches a specific age (i.e., 65 years) if she pays the premium on time. At the end of the term, she need not go through the re-qualification process again, and her policy will be renewed for any term she chooses.

Renewability is critical for a term insurance policy. It ensures that your family stays protected for a more extended period against future financial uncertainties if something unexpected happens to you.

Few handy tips for buying a renewable term insurance policy

If you are purchasing a renewable term plan, here are a few critical factors you must consider.

• Policy tenure

When you purchase a renewable life insurance policy, you can consider buying a yearly renewable policy or the one that is renewed for a specific period, like five years or more. One of the significant benefits of this option is that your premium will be evenly charged over a long period, making it more affordable.

• Fixed level premium

When you purchase a term insurance policy with a renewable option, check if the insurance company is charging a fixed level premium. In most cases, the insurers increase the premium charges after attaining a specific age or after a certain number of years. With a fixed level premium, you can continue with your policy and pay the same premium even after extending the period, provided you pay the premium on time and keep the plan active.

• Flexibility to convert into a cash value plan.

Another vital aspect of buying a renewable term plan is to settle for a policy that gives you the flexibility to convert the term plan into a cash value plan. This way, you can convert the term plan with a savings component and give you valuable returns in your old age after you retire.

Renewable term plan – an excellent policy for all

The importance of a term plan cannot be stressed enough. It is vital to ensure the financial security of your family even in your absence. With a renewable term policy, you can ensure that you give your family the financial cushion they need for a more extended period.

- A Consumer Education Initiative series by Kotak Life