The Guaranteed Renewability on your Term Life Insurance Policy is Likely Not a Viable Option

by Evan

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.

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CR June 24, 2014 - 12:46 pm

Your point is valid to your in-laws.

However, when you view the guarantee as an investment from a beneficiary standpoint (say you and your spouse) the outlook is very different.

Do an analysis of the cost with a tax-free pay out of $1M on a death 20 years out.

Evan June 24, 2014 - 10:54 pm


Interesting point which is why I guess there is a STOLI and COLI industry. I could run the IRR, but just eyeballing the illustration it gets pretty bad quickly. You hit $50K in premium by 67…then 6 digits by 75. I am sure by 83 or 84 we are at a negative IRR.

If someone is sick then sure keep it for a few years, but after awhile it is going to get pretty nasty pretty quick.


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