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.

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.

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.