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Annual Renewable Term Life Insurance [Advantages vs Disadvantages]

ART insurance

Many of the best life insurance companies offer annual renewable term, a/k/a ART insurance.

Annual renewable term insurance is just what it sounds like, it is a term policy that renews each year. Some of these types of term policies allow you to lock into a fixed premium for a period of time.

Nowadays, what you’re generally going to find is that most financial advisors (especially those with TV and Radio shows) are typically going to advise their clients to purchase a LEVEL TERM LIFE INSURANCE POLICY.

The reason for this…

is because level term life insurance offers a fixed premium and fixed death benefit for a specific period of time, say 10 years, up to 40 years with certain companies.

And many people overestimate how much term life insurance will cost. In some cases, simply locking into a 10 year term policy makes more sense than getting a policy that renews each year.

Example

ART: a 40 year old male at a preferred plus rate class will pay around $170 a year.

10 Year Term: a 40 year old male at a preferred plus rate class will pay around $240 a year.

So, you would be locking into a fixed premium for 10 years and pay only $70 more a year, or pay for an annual renewable term that will have increasing premiums each year.

Now…

Some people may not have a need for term insurance for such a long time, or they may need temporary coverage until they can afford to lock into a longer term.

For this reason…

We wanted to take a moment and discuss what an Annually Renewable Term Life Insurance Policy is and discuss some of the pros and cons of owning such a policy are.

This way, you can better understand whether or not an annually renewable term life insurance policy will be a good fit for you.

Questions that will be addressed in this article will include:

  • What is an annual renewable term life insurance policy?
  • What are some of the benefits of a renewable term life insurance policy, and what kind of clients should consider purchasing one?
  • What are some of the disadvantages of purchasing a renewable term life insurance policy, and when are they not a good option?
  • What can I do to help increase my chances of finding the “best” life insurance policy for me?

What is annual renewable term life insurance?

An annual renewable term life insurance policy provides coverage on an annual basis. Each year the policy may increase in price. People generally only choose this type of term insurance if they plan on having it for a short period of time, generally 1-5 years max.

When you shop for the ART policy, your agent can show you your premium payment schedule so you can get an idea of how much you will pay each year, as the premiums increase.

Benefits of a renewable term life insurance policy

Convertible

Annual Renewable Term generally offers a conversion option, allowing the owner to convert the policy to a 20 or 30 year term within the first 3 years of the policy.

Living Benefits

ART policies may offer living benefit riders, such as a terminal illness, chronic illness and critical illness.

No Exam

And some companies offer ART life insurance with no exam, for qualifying applicants, so you can get covered without a blood draw or urine sample.

Lower Initial Premiums

The main benefit that a renewable term life insurance policy can offer to an insured is a lower initial payment for their insurance.

So, if someone believes that they will only need to own their insurance policy for a short period or time, this “type” of term life insurance policy might be a good option for them.

Clients who may want to purchase an annually renewable term life insurance policy may include:

  • Someone needing collateral for a short-term loan (perhaps 1-5 years).
  • Someone who works abroad or traveling for a short period of time.
  • Someone who needs a temporary “bridge policy” until they will be able to qualify for a more affordable long-term solution.

Examples of clients who may find themselves in this situation can include those who:

  • Have recently quit smoking or plan on quitting,
  • Have recently been diagnosed with a pre-existing medical condition that doesn’t disqualify them from coverage but does make their coverage more expensive until they have it under control (high blood pressure or high cholesterol).
  • Have current issues with their driving record, which will expire in a few months or a year, which would allow them to qualify for a better rate.
  • Etc…

So, as you can see…

The main reason why someone might want to consider purchasing a renewable term life insurance policy is so that they can either qualify for a lower initial rate because they only plan on keeping their insurance for a short period of time.

Or… 

They’re looking to purchase an annually renewable term life insurance policy to “minimize” the amount of money they’ll have to pay until they can qualify for a level term life insurance policy at an improved rate.

This highlights the main problem with owning a renewable term life insurance policy, which is that these “types” of life insurance policies usually aren’t a good option for those looking to keep a policy in place for many years.

Annually renewable term life insurance policy Disadvantages

The main problem that you’re going to run into when purchasing an annually renewable term life insurance policy is that each and every year that you own the policy, the price that you pay will likely go up.

Now this increase…

In price year after year may not be all that big of a deal if you’re in your 30s. However, if you’re in your 50s or 60s, you might be surprised by how quickly the annual rate for your coverage may increase.

This is why, most folks who believe that they only need coverage for a few years will often choose to purchase a 10-year term life insurance policy (with a fixed rate for 10 years) vs. an annually renewable term life insurance policy.

The second main issue…

With an annually renewable term life insurance policy is that it the main benefit of owning one of these types of life insurance policies is that in the beginning, you will pay less for your insurance than you would if you picked a “fixed” level term life insurance policy.

“Which is great!”

But this assumes that you will only need your insurance for a few years (at most) and that nothing might happen in the future which may make you want to keep your insurance for a longer period of time.  

This is why…

We here at IBUSA generally recommend that folks who are only looking to purchase their insurance for a very short period of time compare the price of an annually renewable term life insurance company with that of a 10-year term life insurance policy.

Which brings us to our next topic…

What can I do to help increase my chances of finding the “best” life insurance policy for me?

Here at IBUSA, there are two things that one must do to increase their chances of being able to find the “best” life insurance policy for themselves.

First, you’re going to want to make sure that you “shop” your options.

And second, you’re going to want to make sure that you work with a life insurance agent who will take the time to explain exactly your options are.

Otherwise…

You’re probably just going to end up buying the “lowest-priced” life insurance policy available without fully understanding exactly what you’re getting. Fortunately, we here at IBUSA focus a large amount of our time helping folks just like yourself, so if you do decide to give us a call, you’re sure to get the help you deserve.

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