T has a term policy that allows him to continue the coverage after expiration of the initial policy period. What type of term coverage is this?
The Correct Answer Is:
The correct answer is “Renewable.” In the context of term life insurance, a renewable term policy allows the policyholder to continue coverage after the expiration of the initial policy period without the need for a medical examination or providing evidence of insurability.
This feature is particularly valuable because it gives the insured the option to extend their coverage even if they have experienced changes in their health. Here’s a detailed explanation of why the answer is correct, along with explanations for why the other options are not applicable:
A renewable term life insurance policy allows the policyholder to renew or extend the coverage at the end of the initial term without the need for a medical examination or proving their insurability.
The policy can typically be renewed for successive terms or until a certain age specified in the policy, as long as the premium is paid. This feature provides flexibility to the insured, allowing them to maintain coverage even if they face health issues or other circumstances that might otherwise make obtaining a new policy challenging.
Now, let’s explore why the other options are not correct:
An increasing term life insurance policy, also known as “increasing death benefit” or “increasing term insurance,” is a type of term life insurance where the death benefit increases over time. The premium also typically increases as the death benefit rises.
This type of policy is designed to help the insured account for inflation and the increasing financial needs of beneficiaries over the years. In an increasing term policy, the coverage amount grows, but it does not have the renewability feature that allows the policy to be extended beyond the initial term.
A level term life insurance policy is a type of term insurance in which the death benefit and premium remain constant, or “level,” over the entire term of the policy. This type of policy is straightforward and provides a consistent amount of coverage for a specified period, typically 10, 20, or 30 years.
However, level term policies do not include the renewability feature, which means that the coverage ends at the expiration of the term, and the insured must apply for a new policy if they want to continue their coverage. Renewability is a distinct feature found in renewable term policies.
A decreasing term life insurance policy is a type of term insurance where the death benefit gradually decreases over the policy’s term. These policies are often used to cover specific financial obligations, such as a mortgage, where the insured’s debt decreases over time.
The premiums for decreasing term policies usually remain level throughout the term. Similar to level term policies, decreasing term policies do not provide the renewability feature, which means that the coverage decreases over time and terminates at the end of the term.
In summary, a renewable term life insurance policy allows the insured to continue coverage after the initial policy period expires, without needing to undergo a medical examination or prove insurability.
This feature offers flexibility and peace of mind, especially if the insured’s health status changes. The other options, including increasing, level, and decreasing term policies, do not provide this renewability feature and have distinct characteristics tailored to different insurance needs.