Business News Select | SMPost | Terms

Term: Re-Entry Term Insurance

24 Nov 2014

A type of term life insurance contract that offers low rates for a fixed period of time, and which will continue to offer low rates if the policyholder passes periodic medical examinations. Re-entry term insurance was introduced during the 1970s, in response to increased inflation and consumer demand for lower premium increases on the standard term life contract.

As an insurance product, re-entry term insurance developed as a response to consumer demand for lower premiums on term contracts. Term insurance provides coverage for a short-duration, such as one year, allowing insurers to increase premiums each renewal period. When policyholders started paying attention to the effects of inflation, they demanded lower premium increases on their term contracts. Because the insurance market is highly competitive, insurers needed to find a way to maintain low premiums while also keeping policyholders from shopping around for better rates.

Re-entry term insurance offers low premiums for the first several years of renewals, with policy renewing without the need for the policyholder to take a physical medical examination. After the period of low rates has ended the policyholder is required to take an examination – something not required under standard term life contracts – and is allowed to “re-enter” the contract if he or she passes. If the policyholder’s health causes him or her to fail the medical examination the premiums will increase, often to rates above standard term life policies.

As re-entry term policyholders age, they will inevitably experience deteriorating health. This means that, at some point, nearly all policyholders will not be allowed to “re-enter” the policy and will be forced to accept higher rates. This makes re-entry term insurance an attractive option for those who need insurance for a short period of time, since the low rates will stay in effect until a medical examination is required. For individuals planning on maintaining a policy for a longer period of time, the risk of rates being drastically higher due to a failed examination are much greater.

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