Life insurance is a contract between a policyholder/ insurer and a life insurance company. A life insurance policy guarantees the policyholder many more facilities. And to get those facilities the insurer pays a sum amount of money in the name of one or more persons. Beneficiaries come when the insured person dies. For this, the policyholder has to pay a premium amount of money to the life insurance company.
The main purpose of life insurance is to give protection to families like parents, spouses, and children from devastating financial losses. Life insurance provides…
- Financial security
- Helps to pay living expenses
- Helps to pay medical expenses
- Helps to pay off debts
Types Of Life Insurance?
There exist two types of insurance policies. such as…
- Term Life Insurance
- Permanent Life Insurance
In the term life insurance, we can see 3 variations there…
- Renewable Term
- Convertible Term
- Decreasing Term
Here I am going to discuss “RENEWABLE TERM” and “CONVERTIBLE TERM”
A renewable term is a clause in a term insurance policy that allows the beneficiary to extend the coverage term for a set period of time without having to re-qualify for new coverage. A renewable term is contingent on premium payments being up to date, as well as a renewal premium being paid by the beneficiary. By JULIA KAGAN, www.investopedia.com
Benefits Of The Renewable Term
In the sector of life insurance, renewable-term life insurance is most important. Financial advisors recommend getting a renewable policy most of the time.
Renewability is very important because sometimes policyholders want to renew a policy once the time is up.
Renewability enables a policyholder to keep current coverage without re-qualify.
Having a renewable term on a term life insurance policy provides peace of mind in a devastating period.
# easy renewals
# guaranteed life cover
# financial stability for family
Example Of The Renewable Term
Orij Kumar purchased a renewable term life policy at the age of 25. He purchases a 30-year term policy with a renewable option. He pays annual premiums to renew the coverage every year. As long as he pays the premiums on time, he will continue to enjoy the coverage for the next 30 years.
A convertible insurance policy is a type of temporary term life insurance that can be turned into permanent life insurance that will not expire. You can switch coverage at a future date without having to undergo a new health screening process. Convertible life insurance gives you the option to buy low cost temporary coverage now while keeping your options open to buy lifelong coverage later. By KATIE ADAMS,(19 SEPTEMBER,2023) www.investopedia.com
Benefits Of The Convertible Term
The biggest benefit of convertible insurance policies is that the policyholders don’t have to undergo a medical process again to switch to a permanent plan.
When policyholders convert a term policy to whole or universal life, the new permanent policy can have up to the same death benefit as the term policy.
Example of the convertible term
For example, Ayan purchased a $ 100,000 convertible term life insurance policy for 30 years. Also, he chose the option to convert the entire policy into a whole life insurance policy before the age of 50.
After marriage, at the age of 40 with a spouse and kids, Ayan decides to convert his policy to whole life insurance. The premium amounts increase, but there exists a cash value component to withdraw, even as the policy gives beneficiaries after death.
Renewable Term Life vs. Convertible Term Life
Sometimes we become so confused between renewable term life insurance with convertible term life insurance. Let’s get a clear idea from here….
Normally a renewable term life insurance policy allows you to extend current coverage.
Where a convertible term life insurance policy provides the option to buy low-cost temporary coverage.
Renewable term life can not be switched to whole life, whereas convertible term life can be switched to whole life insurance.
What Will Happen When A Term Life Insurance (renewable Term, convertible Term) Policy Matures?
Term life insurance has very pocket-friendly premiums.
People choose term policies when they start earning. They choose term policies as the most attractive and affordable insurance plans available in the market. It has an expiry date or maturity date. When a term life insurance policy matures, the coverage of the policy ends. Some companies will allow you to extend your coverage or replace it with permanent life insurance.
Term life insurance can be extremely valuable to your family and to your own peace of mind, but since it doesn’t create cash value, it doesn’t count as an asset. (www.newyorklife.com )
The term life insurance is more affordable to everyone. But, it has some disadvantages also. It has no cash value or investment component, coverage limitations if outlives the term, the potential for increasing premiums, and no lifelong coverage.
However, term life insurance has the ability to cover the most important period of life. Beneficiaries can use the death benefit to pay for anything from a mortgage to education expenses.