The options for renewing or converting term life insurance policies and their implications.

 As you consider term life insurance, it will be important to know the options for ensuring your coverage keeps pace with changes in your needs. Renewable and convertible policies are two alternatives available to policyowners in term life insurance agreements and two of the very flexible policies affecting long-range financial planning. Each of them is considered below.

Renewing Term Life Insurance: You can renew your policy for a period greater than the original term. Term life insurance policies are usually renewable. This means that you can renew your policy for consideration of another policy term—most likely, for the same length as the initial policy. The benefit of this is that you retain your life insurance without the necessity of re-qualifying for another policy by passing a physical examination or going through the underwriting procedure. However, the renewed policy will generally have higher premiums because of using the then attained age when they will renew the policy. The attained age increases costs of coverage since there is a closer risk to mortality. While renewal is convenient and assures you of continued protection, it may take increasingly more expenses with time and thus important to plan for this bulge in premium.

A permanent insurance policy option that many term policies offer is the conversion of term life. Conversion is a process whereby one is allowed to change a term policy to a whole or universal life policy without undergoing further health underwriting. It simply means that you will have an opportunity to purchase permanent coverage based on your initial health status and your age at which time you bought the term policy. Conversion is particularly good if your health has since declined from when you were first insured, because it allows you to acquire permanent coverage up to the face amount regardless of any new conditions. The generally higher premiums in a converted policy are actually those ages trying to be averted when the coverage on this person was first being arranged. Business conversion is another term you may hear. These are poor old guys who have had all sorts of claims, and the life companies are saying, "No coverage here, Mike, unless you pay higher premiums.". This is good for people who may want lifelong protection and generating cash value, but it should be measured against the potentially higher costs.

Implications of renewing: dealing with higher premiums that increase with old age. A renewed insurance policy will give you more coverage but will not necessarily be the most cost-effective if you happen to be in good health and want to shop around for more insurance options. What is more, if your needs change in terms of coverage or the quantum of coverage you need, renewal might not allow for such flexibility.

The things that happen after converting to be permanent always have the premium rates to increase with a different structure. Obviously, such a type of policy will have a slightly higher starting premium than that for term insurance. The policies may further include a cash spread that is added over time. Obviously, the conversion option provides some unbeaten flexibility, but the long-time cost and other benefits of permanent insurance have to be weighed alongside this. It is important to make an assessment of these benefits of lifetime coverage and fitness with potential cash value accumulation against your financial goals and needs.

In summary: The conversion and renewal options on term life insurance policies are great but do bring some implications with them. While renewal guarantees the continuation of the insurance, it does so at increasing premiums. While conversion allows one to have permanent protection without additional medical underwriting, that is often at a cost. Having all the information on such options and any implications helps you to make actual decisions about keeping or adjusting life insurance to fit your changing goals and needs.