WHAT IS 'Re-Entry Term Insurance'

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

BREAKING DOWN 'Re-Entry Term Insurance'

Re-entry term insurance typically offers low premiums for the first several years. In many cases, the policies will not require the policyholder to take a physical examination during this period.

After this initial phase, however, policyholders must undergo a physical exam and they are allowed to re-enter the contract with the same or very similar premiums if they pass. If they fail, however, their premiums will increase, often to rates above standard term-life policies and well above what they previously were paying.

Pros and Cons of Re-Entry Term Insurance

Re-entry term insurance may be 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 example, a single father in his early 40s who is in very good physical shape with no known health problems and who owns his home outright may take out re-entry term insurance to cover himself for the three remaining years that his only child is still in college. If he chooses a policy with a re-entry option after the third year, he can then choose to continue the coverage for the subsequent two years his child plans to attend graduate school.

Provided the father passes a physical upon re-entry, he will likely be able to keep the coverage at a lower price than he could buy a regular, or level-premium term policy. If he performs poorly on the exam, however, he will need to pay a premium increase.

Of course, as re-entry term policyholders age, they will inevitably experience deteriorating health. This means that, at some point, nearly all policyholders will not be able to “re-enter” the policy and will be forced to accept higher rates.

For this reason, re-entry term insurance is less appealing, for instance, for a set of parents who are seeking to maintain term life coverage for the next 15 years they expect to be making mortgage payments, and while their children are growing up in their household. The parents in this situation may want to instead consider level-premium term coverage, which offers an unchanging death benefit, as well as an unwavering premium. However, this peace of mind will likely come at a higher premium price than the initial period of a re-entry term policy.

  1. Term Life Insurance

    Term life insurance is a type of life insurance that guarantees ...
  2. Developed Premium

    A developed premium is an initial quote from an insurer based ...
  3. Yearly Renewable Term (YRT)

    A yearly renewable term is a one-year term life insurance policy. ...
  4. Future Purchase Option

    A future purchase option is a feature of long-term disability ...
  5. Assessable Policy

    Assessable Policy is a type of insurance policy that may require ...
  6. Premium Balance

    Premium Balance is the amount of premium that is owed to an insurer ...
Related Articles
  1. Insurance

    Term Life Insurance: Everything You Need to Know

    Term life insurance is an affordable way to financially protect your loved ones after your death. Here's what you need to know before purchasing a policy.
  2. Financial Advisor

    Buying a Life Insurance Policy? Read This First

    Knowing who needs life insurance, how it works and the different types of insurance can help consumers make informed decisions about this product.
  3. Insurance

    4 Reasons Why Waiting To Buy Life Insurance Is a Bad Idea

    Understand the benefits of applying for and securing life insurance coverage while you are young and healthy, and learn the cost of waiting to get coverage.
  4. Financial Advisor

    Who Should Buy a Guaranteed Issue Life Insurance Policy?

    Guaranteed issue life insurance policies have added costs and reduced benefits that make them suitable for only a limited pool of buyers.
  5. Insurance

    5 Life Insurance Questions You Should Ask

    Confused about which insurance to get? Learn which life insurance questions you should be asking for you and your family to be covered in an emergency.
  6. Insurance

    Is Loan Protection Insurance Right For You?

    Loan protection insurance can keep you from defaulting on your loans when you're in financial trouble, but it's not for everyone. Learn more on how it can help you.
  7. Financial Advisor

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  8. Personal Finance

    The Best Life Insurance for Military Families

    Two of the most common types of life insurance are term and whole life. Here's why the latter isn't a good idea for most military families.
  9. Insurance

    How Much Life Insurance Should You Carry?

    Before purchasing life insurance it is important to decide if you really need it, what type of policy is best, and how much coverage you should get.
  10. Insurance

    For Life Insurers, Making Money Is A Numbers Game

    Life insurance is a data-driven industry that relies on complex financial models to predict future expenses and income from premiums and investments.
  1. Can an Insurance Company Deny Coverage?

    Insurance isn't always as straightforward as other products, and insurers can deny coverage in many different instances. ... Read Answer >>
  2. Why is my insurance premium so high/low?

    Insurance premiums can be affected by many factors including: type and amount of risk size of deductible amount of coverage ... Read Answer >>
Trading Center