The guaranteed renewability option on your term life insurance is likely to have no real value if you are like many adults who survive their initial term and still need insurance.

My in-laws are about 60 years old and there is still a real need for life insurance on my father in law’s life.  He is still working and eventually they will likely rely on both spouse’s social security (of which one will disappear should there be a premature death).  However, like most people they took out a 20 year term policy, and is often the case survived the term.  Can they rely on the Guaranteed Renewability option? Probably not.

What is a Guaranteed Reneweability Option on a Term Life Policy?

When you buy a term life policy it is often sold as coverage for premature death for a certain amount of years, however, most policies actually provide coverage well beyond the amount of years advertised in the contract’s name (e.g. 10yr term, 20 yr term, etc).  However, that guaranteed reneweability comes at a steep monetary cost.

For example using a Triple A rated mutual company company:

  • A $1,000,000 of coverage for a 35 year old is $745 a year guaranteed for 20 years
  • The 21st year the guaranteed premium? $16,575

Granted, the company I illustrated isn’t known for having the cheapest term prices, but the point is still valid nonetheless.  Relying on the guaranteed renewability is going to cost a lot of money.