Annual Renewable Term: Everything you need to know!

Annual Renewable TermBuying life insurance can get complicated for some because of the fact that there is a wide selection of types of life insurance. It gets simpler once you find out which type of life insurance you want to buy. There are two types of major life insurance and that is permanent life insurance policy and term life. If you decided to buy a term life insurance policy then you probably will have an option called “annual renewable term life.” You probably stumbled across this article trying to get some solid information about annual renewable term life insurance and if so, you have come to the right place! The following are some key points from this article;

  1. Before we get into the renewable annual term we should first explain for those who don’t quite know what term life is. Term life insurance is appealing to many people because of their affordable rates and their simplicity. If you decide on buying a term life policy you will have to choose the benefit amount that you would like your beneficiaries to receive upon your death. Popular death benefit amounts are $250,000, $500,000, $750,000, or $1 million.
  2. Annual renewable term offers a guarantee of future insurability for a set period of years through your term life policy and premiums that are paid annually instead of monthly. However, as you age your premiums will increase yearly. This is why it is designed for short-term insurance needs.
  3. An annual term policy allows you stay locked in for 12 months where you can decide to renew or not without having to undergo a medical exam Like we mentioned before, premiums for annually renewable term plans do increase quickly yearly. The premiums are very low initial but the exact amount will depend on your age and initial health.
  4. A pro is that your policy is renewable so it won’t just disappear if your term length ends and this is great for those not really looking for long-term coverage or for those who don’t really know if they need it so they just pay year by year. If you have a mortgage to pay off if you pass away, ART gives you affordable asset protection.
  5. Annually renewable term life insurance has a big downfall for most consumers and that is the fact that every year after the initial couple premiums they raise tremendously. Some may agree that after a certain couple of years renewing is cost prohibitive.

Term life insurance explained

Before we get into the renewable annual term we should first explain for those who don’t quite know what term life is. Term life insurance is appealing to many people because of their affordable rates and their simplicity. If you decide on buying a term life policy you will have to choose the benefit amount that you would like your beneficiaries to receive upon your death. Popular death benefit amounts are $250,000, $500,000, $750,000, or $1 million. Once you choose your death benefit you will have to set the length of your policy or term. Typical policy lengths are 15, 20, 25, and 30-years. If you decide to purchase a term policy some of them offer “level term” which basically, guarantees that your premium will stay the same for the fill length of the policy.

Annual Renewable Term (ART) Insurance Explained

Annual renewable term offers a guarantee of future insurability for a set period of years through your term life policy and premiums that are paid annually instead of monthly. However, as you age your premiums will increase yearly. This is why it is designed for short-term insurance needs.

Most don’t utilize this term product and they don’t require any additional medical requirements. This is a great term product for those who are not trying to commit to a longer term period, with an annually renewable term policy you will have the option each year of whether or not to continue your coverage. Keep in mind that if you choose a term length longer than you’re willing to commit to your rates will be lower in the long run than a shorter term. This happens because you’re staying ahead of rising medical costs due to inflation.

How does annual renewable term life insurance work?

An annual term policy allows you stay locked in for 12 months where you can decide to renew or not without having to undergo a medical exam Like we mentioned before, premiums for annually renewable term plans do increase quickly yearly. The premiums are very low initial but the exact amount will depend on your age and initial health.

For a term policy whether you decide to have an annually renewable term policy or not you will have three additional features. You have the ability to choose one or more than one beneficiary. A beneficiary can be your family, close friend, or even a charity in which you want to contribute to when you pass. The second feature is that optional riders can be included in your policy. Riders can make any policy appealing because many of them are beneficial such as a long-term care rider, critical illness rider, or a return of premium rider, which is a rider that pays you back your premiums if you outlive the policy. The last feature you will have is convertibility which allows you to switch from a term policy to a permanent life insurance policy which is also something that annual renewable term offers.

Who would benefit from annual renewable term life insurance?

There are a couple different kind of people who would benefit from annual renewable life insurance, here are some situations where a person might be interested in a year-to-year term:

  1. They are only interested in life insurance to cover their short-term debts and obligations.
  2. A person may be in between jobs and is anticipating to buy group life insurance through a future employer.
  3. They may only have a few working years left, typically less than 10-years.
  4. A person may have quit smoking but it hasn’t been a long enough time period to be able to qualify for non-smoker rates.

Pros or Advantages of annually renewable term life insurance

There are a couple of pros that come alongside with ART (annually renewable term) and one of them is that ART has low-cost premiums. Term life insurance alone is the most affordable life insurance type. Another pro is that your policy is renewable so it won’t just disappear if your term length ends and this is great for those not really looking for long-term coverage or for those who don’t really know if they need it so they just pay year by year. If you have a mortgage to pay off if you pass away, ART gives you affordable asset protection. Lastly, you don’t have to re-qualify when you decide to renew the term policy. This is the best pro because if you become terminally ill your policy renewal cannot be declined regardless of your health.

Cons or Disadvantages of annually renewable term life insurance

Annually renewable term life insurance has a big downfall for most consumers and that is the fact that every year after the initial couple premiums they raise tremendously. Some may agree that after a certain couple of years renewing is cost prohibitive. Another con is that yes the premiums for ART are affordable, but they are often still higher than the premiums you would pay for with the same coverage in a whole life policy. Lastly, ART doesn’t offer an investment component because with ART there is no cash value that builds and when you die your beneficiary will only get the amount of the face value of your policy.

Final Thoughts

In conclusion, annually renewable term life insurance is not a very popular insurance option. It is not the best policy for one to have because it basically allows you to have coverage on a yearly basis and because of the fact that you are not sure how long you want to be covered for it will cost you more not knowing in the long run. Whether you want to purchase an ART policy or want a traditional life insurance plan you should still shop around for quotes. If you have 30 seconds you should go below this article and fill out our quick and super easy quote engine so that you can see for yourself what carriers are offering you as well as being able to compare all in one! However, you could take advantage of our FREE services, we are an independent life insurance agency who work with over 60 top rated companies which gives us a wider selection to choose from. Not only will we not stop until we find you the best life insurance company to purchase an ART or a traditional policy but we will also do the whole application for you! Don’t DIY, do it yourself, when you have us around to make your life insurance experience simple. Give us a call today so that you can spend more time with those who matter the most, your family.

Term Life Insurance Quotes
About Mack Dudayev

Mack is owner and life insurance expert at InsureChance. On a mission to create a way everyone can understand, afford and attain the right life insurance coverage to protect their financial responsibilities.

This entry was posted in Life Insurance, Life Insurance Products. Bookmark the permalink.

Leave A Reply