Re-Entry Term Insurance

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.

How Re-Entry Term Insurance Works

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

After the initial phase of the policy, 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 were previously paying.

Re-entry term insurance first appeared during the 1970s in response to increased inflation and consumer demand for lower premium increases on standard term-life contracts. It primarily stood in contrast to regular term insurance policies that were renewed every year without the need for a medical exam, but that also included higher premiums each successive year.

Benefits of Re-Entry Term Insurance

Re-entry term insurance provides an option whereby if your health remains well, then you are entitled to an insurance policy with lower premiums. Once a policyholder can prove their health is acceptable, they can "re-enter" the policy at the same, low premiums as before.

For the most part, standard term life insurance does not provide any beneficial rates to those with good health. If you are within a certain age bracket, you will most likely be paying the same rate as people with good health and poor health. Re-entry term insurance provides a cost-benefit to those who are in better health.

Special Considerations

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.

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 when 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.

Example of Re-Entry Term Insurance

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 from a regular or level-premium term policy. If he performs poorly on the exam, however, he will need to pay a premium increase. If he continues using a re-entry term insurance policy, the likelihood of him failing a medical exam and having to pay a higher premium increases as he gets older.