How is the renewal premium calculated in a Renewable Term policy?

In Renewable Term policies, the renewal premium is calculated based on the insured's attained age. This means that as the policyholder ages, the premium reflects the increased risk associated with an older age group. Insurance companies use age as a key factor in underwriting and pricing policies because the likelihood of claims increases as individuals become older.

Consequently, the renewal premium will adjust upward each time the policy renews, aligning with the insured’s current age rather than their age at the original issue of the policy. This method ensures that the premium more accurately reflects the actual risk the insurer bears at the time of renewal, which is an essential principle in actuarial science and insurance practice.

In contrast, premiums fixed for the life of the policy would not address the changed risk over time, while the notion of similar policies would not directly impact the specific renewal premium of an individual policyholder. Therefore, calculating the renewal premium based on attained age is fundamental to keeping insurance pricing equitable and sustainable for both the insurer and the insured.