Insurance Life Insurance

Definition of Guaranteed Renewable Term Life Insurance

    Function

    • The function of the Guaranteed Renewability clause in term life insurance policies allows the policy owner to continue coverage beyond the expiry of the original term period. While few people actually take advantage of this clause, its existence protects the financial stability of many people whose life and health situations make it impossible to purchase a new policy.

    Benefits

    • The presence of the Guaranteed Renewability clause in term life insurance contracts benefits policy owners who develop medical conditions, or other situational factors, that would otherwise result in their being declined an application for new life insurance coverage. Without the need to re-qualify, based on current underwriting guidelines, the existing term policy may remain in force, thereby continuing to provide necessary financial protection for heirs.

    Misconceptions

    • The stability of term life insurance premiums, after the rate guarantee period, is the largest misconception held by people who choose to continue coverage under the Guaranteed Renewability clause. Even though the policy contract may state that the insured can continue coverage until age 95 or 100, the Guaranteed Renewability clause mentions nothing about the new premiums. In many cases, premiums for term policies kept beyond the initial rate lock period skyrocket to amounts as high as 400 percent of the initial cost, and continue increasing annually.

    Time Frame

    • The majority of life insurance contracts allow the policy owner a 30-day window at the expiry of the original term period within which the decision to maintain coverage must be made. If the new premium is not received during this grace period, the policy is terminated and the owner is left uninsured.

    Alternative

    • Very few term life insurance policies are continued beyond the end of the fixed premium period, simply because the cost of the plan increases too dramatically for most people. The most common alternative to retaining coverage involves converting the term policy into a permanent product. Conversion of a term policy completely changes the provisions of the contract and modifies the term plan to a whole-life or universal-life product. Conversion requires no additional underwriting or medical exams, and serves to guarantee coverage until the owner reaches age 95 or 100. Compared to continuing a term policy past the end of the fixed premium period, conversion presents a more sensible alternative that fixes the new cost forever.

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