Annual Renewable Term Life Insurance
Annual Renewable Term (ART) life insurance is also known as Yearly Renewable Term (YRT), Increasing Premium Term (IPT), and One Year Term Life Insurance. ART life insurance provides protection for a period of one year and then automatically renews at an increased premium each year. The maximum age at which an ART policy will end varies according to the insurance company issuing the plan, and the state laws where the policy is being issued. For example, in one state an insurer may offer a policy renewable to age 85, while in another state the same plan may be renewed only to age 75. Annual Renewable Term is typically the least expensive life insurance plan that can be purchased for level coverage needed between one and four years. If four or more years of life insurance coverage are needed, other Renewable Term Life Insurance Plans usually provide cheaper alternatives to ART plans.
• A BRIEF HISTORY
According to the 2005 Term Product Study by LIMRA (Life Insurance and Market Research Association) in 1990, 62 % of all ‘term policies sold’ were ‘1 year’ or Yearly Renewable Term life plans; while only 1 % of ‘term insurance sales’ were ’20 year’ term policies. The Study showed that by 2004 ‘1 year’ ‘term insurance sales’ were down to 5 % and the ‘percent’ of ‘20 year’ level term ‘policies sold’ had increased to 45 %. Some reasons for the shift in the type of ‘level premium’ plans sold included: increased competition in the market by new insurance companies; new marketing strategies; the birth and rise of online brokerages; market returns and volatility; and increased consumer knowledge and demand.
• ADVANTAGES AND PURPOSES OF ANNUAL RENEWABLE TERM:
- It is the cheapest form of term life insurance for the short-term.
- Like most term plans ART offers a Conversion Option for a certain number of years.
- It may be the answer for consumers or new business owners that need a short-term loan paid off.
- ART may be the plan for certain college students, newlyweds, or young adults with limited funds that just want low cost life insurance coverage for one to four years until they will review their coverage needs.
• DISADVANTAGES OF ANNUAL RENEWABLE TERM LIFE:
- The most notable disadvantage of annual renewable term life insurance is that its premium increases every year.
- Although ART starts out as the cheapest form of term life insurance, over the medium to long-term, it usually becomes the most expensive choice.
- Another significant disadvantage is that if the insured develops a serious illness and they become ‘uninsurable,’ they would be likely be unable to change insurance plans, and be tied to the increased premiums. Likewise, if the insured’s developed certain medical conditions that would cause them to become ‘rated’ (see The Underwriting Process or What is my Health Class or Rating?), then a new term life plan would be offered at a higher premium cost.
- Often the conversion privilege or option is only available for the first ten years or until the insured reaches a certain age, such as 55.
Before buying a life insurance policy, the buyer should have an idea of which range of coverage period they want or need: short-term, medium range, long-term, or for their lifetime. Additionally, the buyer should compare the various types of life insurance plans that are designed to meet their desired goals.
• FOR MORE INFORMATION (see the following articles):
How much coverage do I need? – This link may help you determine the amount of life insurance protection or coverage you require.
What term period should I select? – This link addresses the various level term periods available, some purposes for their design, and looks at questions you could ask to help determine your choices.
What policy should I buy? – This link may help you decide on which is the best life insurance product for you.
Renewable Term Life Insurance Plans – This link gives an overview of various renewable term life insurance plans.
Term Life vs. Permanent Life Insurance – This link explains and compares the differences in term life insurance versus permanent life insurance plans.
Advantages & Disadvantages of Term Life Insurance – This link addresses the most important advantages and disadvantages to term life insurance plans.