Many people choose term life insurance for its lower rates and set duration of the policy life. This allows them to budget their insurance needs and at the same time have coverage for children, elderly parents, or even the life of a mortgage. Typically, term life insurance is set for a predetermined term and the rate of the policy remains constant over that term. However, annual renewable term life insurance is another type of term life that may be best for families who aren’t sure how long they are going to need the policy and are willing to accept rate increases when the policy renews.
Defining Annual Renewable Term Policies
Annual renewable term life insurance policies are very similar to traditional term life insurance policies with the exception of the term. Traditional term polices are set for anywhere from 5 to 30 years with a premium that doesn’t change during the life of the policy. However, annual renewable term policies are term life insurance policies that automatically renew annually or at certain time periods, such as every 5 years. The premiums on the policy rise with each renewal period or with the age of the applicant.
Advantages of Renewable Term Policies
The biggest advantage of a term life insurance policy that is renewable is the price. Term life insurance policies are the most affordable life insurance policies on the market. These policies only carry a death benefit and only pay if the death is during the term, which, with renewable term policies is often quite short.
The premiums on annual renewable term life insurance polices are the lowest of the insurance policies. The insurance company is assuming very little risk with these policies and the term is typically very short, some as little as one year. These policies are the ideal choice for people who have lost their employment and thus the life insurance that comes with most jobs. Annual renewable life insurance policies offer coverage until other coverage is obtained.
Types of Annual Renewable Life Insurance
Premiums and premium increases are the main difference in the various types of annual renewable life insurance policies. Some are set to renew and thus increase in price on an annual basis. These policies increase according to the economic situation at the time of renewal, such as inflation and industry standards.
Other annual renewable term life insurance policies have set premiums that increase based on an age table that is provided to the applicant when the policy is underwritten. The good news is that with these policies, the premiums are set according to the tables and won’t increase beyond what is disclosed.
What to Look for in Annual Renewable Term Life Insurance?
If an annual renewable policy is decided on, there are some things that an applicant should take into consideration before purchasing the policy.
The first thing that should be asked is whether or not the policy requires proof of insurability at the end of every term. Some of these renewable policies require the insured to provide proof that they are healthy enough to be insured for a new term. This is simply the insurance company’s way of making sure that a terminal disease has not been discovered during the policy term and that if they are renewed they will likely die during the term. This is one of the disadvantages of renewable term life insurance; however, not all policies have this clause and it is worth investigating.
If renewal and health concerns are issues, there are policies that have guaranteed renewal clauses that provide for renewal without proof of insurability. This is the typical form of annual renewable life insurance. This policy has a guaranteed renewable term, usually from 10 to 30 years. During this term, the policy holder is guaranteed the ability to renew without a health exam; however, they will experience the increase in premiums that other renewable policies have. These policies can become quite expensive if renewed throughout the life of the policy holder; however, the chances of the policy being paid to the beneficiary are much greater than with other renewable term policies.
This type of renewable term life insurance policy is appealing to many people who don’t want to have a gap in coverage in their term life insurance and yet aren’t sure how many years they are going to need the life insurance. While there are advantages to this type of policy, the costs must be weighed as well, as they will become higher as the insured ages.
Annual renewable term life insurance is one option in term life insurance policies that many people opt for in order to give them more options in the term of the policy than they would normally have with other term policies. The premiums are not locked in as they are with other term polices but at the same time, the term is not locked in either.