How there is a difference between Level Term and Renewable Term Life Insurance

By | November 18, 2009

When purchasing a term life insurance policy, there are two main types of policies you should consider. These are the Annual Renewable Term Insurance Policy and the Level Term Life Insurance Policy. Understanding the key terms of these policies as well as their benefits is crucial when determining which policy will work best for you and your family. Proper protection for the event of death is made possible with term life insurance. The choice between Annual Renewable Term Insurance and Level Term Insurance is a personal one and should be made with much thought and consideration after speaking with a knowledgeable insurance broker.

 

Annual Renewable Term Life Insurance is the simplest form of life insurance available. With a term of one year, this policy will pay out a death benefit to your beneficiaries if you die within the term, one year, of the policy. The likelyhood of a death on the policy will determine the insurance company premium. These policies may be excellent stop gap measures for people in need of a short term solution to their insurance needs, but they are wrought with difficulties as well. The main problem faced by policy holders is the issue of renewability. Simply put, if you hold an Annual Renewable Term Life Insurance Policy and, during the term, discover you have a rare terminal illness, but do not die from that illness during the term of your insurance it is highly unlikely that your insurer will renew your policy based on your medical condition. To make matters worse, you may not be eligible for any insurance because of your new condition. This is the risk you take when you purchase an Annual Renewable Term Life Insurance Policy. On the upside, these policies are often a perfect fit for young, healthy, financially struggling families because the premiums for healthy young adults are relatively low and the chances of being diagnosed with a terminal illness over the course of the year are low as well.

 

A much more common form of term life insurance is the Level Term Life Insurance Policy. These policies guarantee a level premium for the entire term of the policy.  Common policy terms of 10 – 30 years are available and the premium on the policy will never change. This option is slightly more expensive than the Annual Renewable Term Insurance option.The policy is based on the risks of death for the entire policy term.Premiums will rise at the later end of this policy because there is a higher risk in later years than in earlier years. A Level Term Life Insurance Policy averages the premiums for each year of the policy and determines your premium amount based on this average.You may pay a higher premium, but it should never go up. Most Term Life Insurance policies will include as an added plus point the option to renew.At the end of the term it’s therefore possible to renew your policy. It is important to note that not all options to renew are guaranteed. Some, but not all, insurers ask for a medical examination.




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