Term Policy Features

Term life insurance policies include important features that provide flexibility and options for policyholders. Understanding renewability and convertibility is essential for the exam.

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Renewability

Renewability (or guaranteed renewability) gives the policyholder the right to renew coverage at the end of the term without providing evidence of insurability.

How Renewability Works

Why Renewability Matters

Consider this scenario:

• A 35-year-old buys a 10-year term policy
• At age 42, she's diagnosed with cancer
• At age 45, the term expires
• Without renewability: She cannot get new coverage due to cancer
• With renewability: She can renew at age 45 rates regardless of cancer

Renewal Premium Calculation

Renewal premiums are based on attained age—the insured's age at renewal:

Exam Tip: Renewability guarantees the RIGHT to renew but does NOT guarantee the premium. Premiums increase at renewal based on attained age.

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Convertibility

Convertibility gives the policyholder the right to convert a term policy to a permanent policy without providing evidence of insurability.

How Conversion Works

Why Convertibility Matters

Conversion allows someone to:

• Lock in insurability while young and healthy
• Start with affordable term coverage
• Upgrade to permanent coverage later
• Convert even if health has declined

Conversion Deadlines

Policies set limits on when conversion can occur:

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Conversion Methods: Attained Age vs. Original Age

When converting, the premium for the new permanent policy can be calculated using one of two methods:

Attained Age Conversion

Attained age conversion calculates the premium based on the insured's current age at the time of conversion.

Example: 35-year-old buys term, converts at 45 → pays 45-year-old rates for permanent policy.

Original Age Conversion

Original age conversion calculates the premium based on the insured's age when the original term policy was issued.

Example: 35-year-old buys term, converts at 45 → pays 35-year-old rates BUT must pay 10 years of back premiums (the difference between what was paid and what would have been paid for permanent coverage).

Comparison

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Re-Entry Provisions

Re-entry provisions allow policyholders to requalify for lower premiums by proving continued good health.

How Re-Entry Works

1. Policy owner submits to new underwriting (medical exam, health questions)
2. If still in good health → qualifies for lower "select" rates
3. If health has declined → continues at standard rates
4. Can attempt re-entry at specified intervals (often every 5 years)

Re-Entry Rate Example

When Re-Entry Makes Sense

• Insured is confident they'll remain healthy
• Willing to undergo medical exams periodically
• Wants opportunity for lower premiums

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Other Important Term Policy Features

Grace Period

All term policies include a grace period (usually 30-31 days) during which a late premium can be paid without policy lapse.

Reinstatement

If a policy lapses, most insurers allow reinstatement within a certain period (often 3-5 years) if the policyholder:

• Pays all back premiums with interest
• Provides evidence of insurability
• Meets other policy conditions

Waiver of Premium Rider

This optional rider waives premium payments if the insured becomes totally disabled:

• Premiums waived after waiting period (usually 6 months)
• Policy stays in force during disability
• Coverage continues without payment

Accelerated Death Benefit Rider

This rider provides early access to death benefits if the insured is diagnosed with a terminal illness:

• Typically can access 25-75% of death benefit
• Reduces remaining death benefit
• Helps cover medical expenses

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Summary: Renewability vs. Convertibility

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Key Takeaways

• Renewability guarantees the right to renew term coverage without proving insurability
• Convertibility guarantees the right to convert to permanent insurance without medical exams
• Renewal premiums are based on attained age (current age)
• Conversion can use attained age (no extra cost) or original age (lower premiums, back premium due)
• Re-entry provisions allow healthy insureds to requalify for lower rates
• Waiver of premium and accelerated death benefit are common riders
• Both renewability and convertibility protect insureds whose health may decline