ART is generally best suited to short-term coverage needs, such as a temporary business obligation, loan, or other financial need.
What is renewable term life insurance?
Renewable term life insurance is a type of policy that lets you extend the coverage at the end of your term. This allows you to keep coverage without applying for a new policy or taking another medical exam.
Many level term life policies come with the option to renew your policy on an annual basis at the end of the initial term. While you could keep term life in perpetuity, nearly no one does this since the costs are intentionally very high.
Even if you have a level term policy that’s guaranteed renewable up until age 95, for example, your premiums increase every year after your initial term and can become very expensive. Some insurers may reduce the death benefit at older ages instead of continuing to increase premiums.
Annual renewable term is a common type of renewable life insurance, but not all renewable life insurance policies are limited to an initial term of one year.
How does annually renewable term insurance work?
Annual renewable term (ART) life insurance works similarly to a traditional term life policy, but with one key difference: the policy renews each year and your premiums increase over time.
If you die while your policy is active, your beneficiaries — the people you name on your life insurance policy to receive the death benefit — receive a payout from the insurance company. This payout is known as the death benefit.
Traditional term life insurance policies typically have guaranteed level premiums, meaning your payments stay the same throughout the entire term. Your premiums generally only increase if you let your policy lapse and need to purchase a new policy, or if your insurer allows you to change your coverage amount.
With an ART policy, it’s common to renew your coverage each year without submitting a new application or taking another medical exam.
However, that convenience doesn’t mean your premiums stay the same. The insurer increases your rates at each renewal based on your age and the policy’s renewal schedule.
Initially, ART premiums are often lower than what you’d pay for a comparable level term policy. However, because rates increase every year, the cost can become significantly higher over time and may eventually exceed the cost of a guaranteed level term policy.
What affects the cost of annual renewable term life insurance?
Like other types of life insurance, your age, gender, health, and lifestyle factors affect the cost of annual renewable term life premiums.
Life insurance premiums reflect how risky it is for the insurer to cover you based on your estimated lifespan and the length of your term.
The younger and healthier you are, the lower your premiums will be.
The shorter your term, the lower your premiums will be, too.
For annually renewable term life insurance policies, the insurance company calculates your premium based on the risk that you’ll die during that particular year, which becomes more likely as you age or develop health conditions.
By contrast, traditional term life insurance policies base your premium on your health and age when you buy your policy. A 40-year-old can pay the same premiums that they did at age 25 with a 20-year term, while a 40-year-old with an annually renewable policy would pay significantly more.
→ Learn more about what impacts life insurance rates
Pros of annually renewable term life insurance
Annually renewable term life insurance is generally cheaper than other types of coverage during the first few years the policy is active, and you get to decide how many years you keep your policy.
Annual renewable insurance is best for people in specific circumstances, such as:
A traditional policy is out of your budget. If you can’t afford regular term life insurance, the initial premiums of a renewable policy may be easier to afford for a short period.
You only need temporary coverage. In rare cases, you may only need a short-term policy (e.g., if you're covering a short-term loan). An annual renewable policy may be more cost-effective in this case.
You’re improving your health or habits. Life insurance companies may lower your premiums if your health improves or you quit a habit like smoking. But you need to show improvement for a year or more. A renewable policy may save you some money until you can qualify for a long-term policy that fits your budget.
Cons of annually renewable term life insurance
For most people, a level term life insurance policy offers better long-term value than an annually renewable term (ART) policy.
Because premiums increase each year, you’ll typically pay more over time for an ART policy than you would for a level term policy with the same coverage amount. It can also be harder to budget for long-term coverage since your costs rise every year and may become difficult to afford if you keep the policy longer than expected.
If your health changes, you may have a harder time qualifying for a new life insurance policy later. While many ART policies are guaranteed renewable and allow you to continue renewing coverage without a new medical exam, your premiums can still become significantly more expensive as you age.
By contrast, a traditional level term policy locks in your premium for the entire term. As long as you continue paying your premiums, your insurer generally can’t raise your rates based on changes to your health.
You can also cancel a level term policy at any time if you no longer need coverage before the end of the term, giving you flexibility without the uncertainty of annual premium increases.
Can you add riders to annual renewable term insurance?
You can buy additional coverage and customizations — known as riders — for your annual renewable life insurance like you can for a traditional policy.
Some common renewable term life insurance riders include:
Accelerated death benefit: Often included at no cost, this rider allows you to use some of your death benefit to pay for end-of-life care if you become terminally ill.
Child insurance: Child riders provide coverage for your children without the high costs of a standalone child life insurance policy.
Spousal insurance: A spousal rider adds some coverage for your spouse to your policy, which can be useful if they don’t qualify for an individual policy.
Waiver of premium: This rider waives your premiums if you become disabled and can’t work.
Conversion rider: This feature allows you to convert your term life policy into a permanent policy at the end of the term. Many insurance companies include this feature for free.
Is annually renewable life insurance worth it?
ART policies are best used for specific short-term life insurance needs. For many people, a traditional term life insurance policy offers cheaper premiums long-term and simpler coverage that doesn’t require yearly renewals.
If you think an annually renewable policy is right for you, you can speak with a Policygenius agent to go over your options and compare top-rated insurers in one spot.
Other types of term life insurance
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