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Ask the Life Insurance Expert
I have an annual renewal term life insurance policy available through 2018, and I've been paying premiums on it since 1992. I was recently diagnosed with cancer. Can the life insurance company cancel the policy?
Check your policy for details, but generally annual renewable term offers guaranteed insurability for a certain number of years. That means as long as you pay the premium each year, the policy is renewable during the term, regardless of changes in your health. If you're still within the term of guaranteed insurability, you would not have to report your illness to the life insurance company.
Unlike level-premium term life insurance, annual renewable term life does not have a fixed rate over a period of years. Instead, the rate rises each year as you age. With level-premium term life, you pay the same price every year during the term for the coverage. The premium for annual renewable term life starts out lower than the premium for level term. But in later years, it exceeds what you would have paid in those years for a level term life policy.
The premium for annual renewable term each year is calculated according to the chance of you dying within the next year, based on your current age and your health condition when you applied for coverage.
Keep in mind that term life does not include cash value. It pays a death benefit to your beneficiary if you die while the policy is in force. Only permanent life insurance, such as whole life or universal life, covers you no matter when you die and has cash value that you can borrow or withdraw from the policy.
Most term life policies sold today can be converted to permanent life insurance policies within a certain time frame. The deadline for conversion varies by policy and company. Talk to your insurance agent or company for details.
For more, see The basics of term life insurance.