What Is Post-Level Renewable Term?

Life insurance is a critical component to your personal financial needs. Term insurance is the lowest-cost option available for life insurance coverage. But term insurance comes with a major downside, it is only for a set period of time. What happens if you need coverage but you are nearing the last year of your term policy? Most term policies provide you the ability to extend your coverage with annual renewable term insurance in your post-level pay period. This feature allows you to continue to purchase 1-year term policies until the ultimate maximum age.

However, the price you pay on post-level renewable term will be significantly higher than you paid during your policy term. And each time you renew the price will increase.

But post-level renewable term is one of the many useful features on term products that are not well known. If you need to fill a short-term coverage gap, the post-level term option may be right for you.

What Is Term Life Insurance?

Term life insurance provides coverage for a predetermined period of time. The vast majority of term life is ‘level-pay’ term. This means you select the coverage period and pay a flat premium for the entire period. If you die while your policy is in good standing, your beneficiaries will receive the face amount of the coverage.

For example, you purchase a 20-year term policy with $500,000 of coverage for $200 a year premium. You will pay the same $200 every year for 20-years. If you die during the 20 year period your beneficiaries receive $500,000.

However, if you don’t die in 20 years, you get no payments back, and you no longer have coverage. Luckily, there are 2 primary options to extend coverage that are available on most term products:

• Term Conversion Riders – term conversion riders give you the option to convert your term policy to a permanent policy at the same face and underwriting class
• Post-level term insurance – allows you to purchase 1-year renewable term after your level-pay period expires. In the above example, the 20-year term is your level pay period. Starting in year 21 you would be in the ‘post-level’ period with 1-year term.

Both options to extend coverage have a list of pros and cons. You should review any decision with your advisor and make sure they fit into your personal financial plan.

What is Post-Level Renewable Term Insurance?

When you purchase a term product, you almost always are purchasing ‘level-pay’ term insurance. This means that you will pay a flat premium for the defined level-pay period. A 20-year term product will have a 20-year level-pay period.

However, at the end of your level-pay period, most term insurance has the option to extend your coverage. You can purchase 1-year, annually renewable term coverage until the max issue age (usually 90-95 years old). After that max age in the contract, you can no longer extend your coverage.

This is called ‘post-level term’ or ‘post-level annual renewable term’. It is ‘post-level’ because it is term insurance that comes after the level-pay period of the policy expired. Post-level term is usually done through 1-year annually renewable policies.

Post-level term allows you to continue your coverage beyond the original level-pay period. However, this comes at a cost as the premiums on each renewable term period increase significantly.

What Are The Benefits of Post-Level Term?

Post-level term can be an ideal fit if you need a couple years of bridge coverage. Additionally, you may have a health issue that makes it impossible to get a new policy, so you need to extend your current policy.

The benefit of post-level term is that you don’t need to go through any new underwriting and likely can’t be denied the coverage extension. You also don’t need to enter a new contract or policy.

How Does Post-Level Annual Renewable Term Work?

Every insurance company and product has different rules. Review your policy documents or contact your insurer to find the specifics for your policy.

In general, you contact your insurance company and inform them you want to exercise the post-level option. Then there are 2 different designs for post-level term:

• Increasing Annual Premiums – By far the most common, each year when you renew you pay a significantly increasing premium.
• Decreased Face Amount – Much less common are post level periods where the premium is the same as during the level pay period, but the coverage amount decreases 90-95%+. If you were paying $200 a year for $250,000 of face amount, when you get to the post-level period you would still pay $200, but only have $20,000 of coverage.

Other than the above change to premium or face amount, the policy functions the same as in the level-pay period. If you die while the policy is in good standing, your beneficiary receives the death benefit.

However, all term policies are required to have an absolute end date. Most of the time this is when you reach age 90-95, though sometimes it can be up to 100. Therefore, you can not extend your term policy indefinitely. If you want a guaranteed for life product, you need to use permanent insurance.

The Final Word – Extending Your Term Insurance

The post-level annual renewable term option is a valuable feature to know of. It allows for additional flexibility around the end of your pre-determined level-pay period.

If you have a few extra years of coverage needs, this is a great option to bridge the gap. Also, if you have near-term health issues that make it unlikely you qualify for new life insurance, you can use the post-level feature to keep you covered. You typically don’t get re-underwritten for the post-level term, making it a fairly seamless process. And this feature comes standard on most term policies by the major life insurance companies.

However, exercising this option comes with the cost of higher premiums at each renewal.

At the end of the day, you need to review your personal financial plan to see if post-level term is the correct move for you.