What Is Annual Renewable Term Life Insurance?
Explore Annual Renewable Term life insurance. Get a clear overview of its annual structure, premium changes, and how it differs from other policies.
Life insurance offers a death benefit to beneficiaries upon the policyholder’s passing, helping cover expenses from daily living costs to future financial needs. Term life insurance provides coverage for a specific duration, unlike policies designed for lifelong protection. Annual Renewable Term (ART) life insurance is a type of term policy that can be renewed yearly.
Understanding Annual Renewable Term Life Insurance
Annual Renewable Term (ART) life insurance provides coverage for a period of one year. This type of policy offers a death benefit to beneficiaries if the insured individual passes away within that 12-month timeframe. A defining characteristic of ART is its guaranteed renewability, meaning policyholders can renew each year without a new medical examination or re-qualify based on health status. The death benefit amount generally remains consistent if the policy is renewed. Like other term life insurance, ART policies do not accumulate cash value.
How Premiums and Renewals Function
For Annual Renewable Term policies, premiums are determined for each one-year term and increase with each renewal. The rise in premiums occurs because the cost is based on the insured’s age; as an individual ages, the statistical likelihood of mortality increases, leading to higher insurance costs. The guaranteed renewability feature ensures that as long as premiums are paid, the insurer must continue the coverage, even if the policyholder’s health deteriorates significantly. While renewal is guaranteed, there are often maximum age limits, such as 70 or 80, beyond which policies may no longer be renewable.
Distinguishing Annual Renewable Term
Annual Renewable Term life insurance differs from other types of life insurance in its premium structure and duration. Unlike ART, which features premiums that increase annually, level term life insurance policies maintain a constant premium for a longer, predetermined period, such as 10, 20, or 30 years. Upon the expiration of a level term policy, extending coverage necessitates a new application and underwriting process.
ART also contrasts with permanent life insurance policies, such as whole life or universal life. Permanent policies offer lifelong coverage, provided premiums are paid, and include a cash value component that can grow over time. Premiums for permanent life insurance are higher than the initial premiums for ART policies, reflecting the lifelong coverage and cash accumulation aspects.