Term life renewability and convertibility features

Term insurance in one sentence

A term life policy pays a death benefit only if the insured dies during a stated period — the term. When the term ends, the protection ends. Because term coverage is pure protection for a limited time, it generally costs less per dollar of death benefit at younger ages than permanent coverage, and it builds little or no cash value (Tex. Dep't of Ins. Consumer Pub. CB018, Life Insurance Guide).

That expiration date is exactly why two contract features matter so much: renewability and convertibility. Both are insurability protections. Neither is automatic — each exists only if the policy contract grants it, so the producer's job is to read the form and explain what it actually says (Tex. Ins. Code ch. 1101).

Renewability: keeping the same kind of coverage

A renewable term policy lets the policyowner continue term coverage for another term at the end of the current one without providing evidence of insurability — no new application questions about health, no medical exam, no re-underwriting. Health changes during the term cannot be used to deny the renewal.

Three things to remember about renewal:

• The premium goes up at each renewal. The new rate is based on the insured's attained age — the age reached at renewal, not the age at original issue. Rates for life insurance rise as the insured gets older (CB018).
• Renewal is limited. Contracts typically cap renewals by a maximum age or a number of renewals stated in the policy. After that point the coverage simply ends.
• Renewal costs more than new underwriting would for a healthy person. Insureds who are still in good health tend to shop for a new, underwritten policy, so the pool that renews is less healthy on average. That adverse selection is priced into renewal rates.

Renewability answers the question: "What if I still need term coverage but my health has changed?"

Convertibility: changing to permanent coverage

A convertible term policy lets the policyowner exchange the term coverage for a permanent plan — whole life or another cash-value form — again without evidence of insurability. The insured's current health is irrelevant to the exchange.

Key points on conversion:

• There is a conversion window. The contract states a period, or an attained-age limit, after which the right disappears. Once the window closes, converting requires new underwriting like any other application.
• The new premium is a permanent-plan premium, normally based on attained age at conversion. Some contracts offer an original age option that computes the premium as if the permanent policy had been issued at the original date, typically requiring a lump-sum payment for the difference in past premiums.
• The face amount may be equal to or less than the term amount, as the contract permits.
• The converted policy has guaranteed values. Unlike the term policy it replaces, a permanent policy accrues nonforfeiture benefits — cash surrender value and paid-up or extended-term options — under the standard nonforfeiture law (Tex. Ins. Code ch. 1105).

How they differ

Renewal keeps the same type of coverage going for another limited term. Conversion changes the coverage to a different, permanent type that does not expire and builds value. A policy may be renewable, convertible, both, or neither, and the two rights can run on different clocks — conversion often ends earlier than the last renewal.

Both features are contract provisions of the filed policy form, so the exact ages, windows, plans available, and premium basis are found in the policy, not in a universal rule (Tex. Ins. Code Title 7).