Most life insurance policies last for several years or even decades, during which you pay a premium to keep the coverage active and the policy pays out if you die during the active period. Term life insurance policies usually last 10 to 30 years, come with few tax restrictions and limitations, and are best suited for people looking to protect their income and provide their family with a financial safety net.
Renewable term life insurance works the same way, but oftentimes terms only last one year. The policy has to be renewed every year at a higher premium if you want to keep your coverage. Some companies also offer five-year renewable term, which works similarly but your keep your new rates for five years before they increase again.
Annually renewable term insurance is best for short-term life insurance needs because it eventually becomes more expensive than a comparable level term life insurance policy, where premiums stay the same throughout the duration of the policy.
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 without taking another medical exam. Many level term policies come with the option to renew your policy on an annual basis at the end of the initial term, up until a certain age, usually between 85 and 95.
It’s important to note that even if you have a level term policy that’s guaranteed renewable up until age 95, for example, after your initial term your premiums increase every year and can become very expensive.
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 annual renewable term insurance works
Annual renewable life insurance works just like a term life policy with a longer coverage period. If you die while your policy is active, your beneficiaries get a death benefit from the insurance company.
Traditional term life insurance policies usually have a guaranteed level premium, meaning that your premiums stay the same throughout your entire policy term. Your premiums can only go up if you let your policy lapse or change your coverage amount.
Annual renewable insurance rates are often lower than what you’d pay for a similar traditional term life policy. However, the rates go up every time you renew your policy. They'll eventually be much higher than rates for a guaranteed level policy.
What affects the cost of annual renewable term life insurance?
Your age, health, sex, and medical history affect the cost of annual renewable term life premiums.
Life insurance premiums reflect how risky it is for your provider to insure 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 provider 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
What are the benefits 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.
For most other people, a level term life insurance policy is a better value. If you get sick, your annual renewable coverage could become too costly or you might become ineligible for the policy. With a traditional policy, your coverage can't become more expensive or be canceled due to health changes as long as it remains active.
You can also cancel your level term policy if you find you no longer need coverage before the end of your term, so you can still control how many years your policy remains active.
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 riders are automatically included at no cost, while others may require an additional fee.
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 some coverage for your children without the high costs of a standalone child life insurance policy.
Spousal insurance: Like a child rider, a spousal rider adds some life insurance coverage for your spouse to your policy, which can be useful if they don’t qualify for an individual policy. Costs and coverage are lower than an individual policy for your spouse.
Waiver of premium: Also known as a waiver of premium for disability, this rider waives your premiums if you become disabled and can't work.
Annual renewable life insurance is best used for specific short-term life insurance needs. For many people, a traditional term life insurance policy offers more affordable 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
Frequently asked questions
What’s the difference between renewable life insurance and convertible life insurance?
Renewable life insurance allows you to extend your term life insurance by renewing your existing policy at the end of the specified term. Convertible life insurance allows you to convert your existing term policy into a permanent life insurance policy instead. Some level term policies are both renewable and convertible — the agent you’re working with will be able to let you know if this is the case when you apply.
What are the pros and cons of an annual renewable policy?
Annual renewable policies are more affordable than traditional term life insurance for a short period, so they can be cost-effective if you have a temporary insurance need. However, it can become expensive to renew each year in comparison to a level term policy.
Are other types of life insurance renewable?
Oftentimes, you can renew a traditional term life insurance policy at the end of your term at a higher premium. To get the best rates, you can shop around to make sure a renewal isn’t more expensive than buying a new policy.
