If you're considering term life insurance, you may see information about a specific type of term life: annual renewable term life insurance.
An annual renewable term life insurance policy involves a one-year contract that locks in your rate only for a year. You don't have to answer health questions or take a life insurance medical exam to renew but your premium will likely increase every year.
It's different from "level term life insurance," which offers insurance for periods of 5, 10, 20, 25 or 30 years. Your rates can't change during the policy period.
The policy paperwork will contain a "schedule of premiums" showing the premium at every age after you buy the policy. There could also be an annual "policy fee" -- for example, $60. Check the policy for the fee amount.
Here's an example of a schedule of premiums for a 35-year-old man buying a $100,000 annual renewable term policy, not including any annual policy fee.
Example: Premium schedule for a $100,000 annual renewable term policy
| Age | Annual premium |
|---|---|
| 35 | $178 |
| 36 | $178 |
| 37 | $178 |
| 38 | $178 |
| 39 | $178 |
| 40 | $178 |
| 41 | $178 |
| 42 | $178 |
| 43 | $178 |
| 44 | $178 |
| 45 | $654 |
| 46 | $717 |
| 47 | $774 |
| 48 | $831 |
| 49 | $897 |
| 50 | $978 |
| 51 | $1,074 |
| 52 | $1,188 |
| 53 | $1,317 |
| 54 | $1,467 |
| 55 | $1,638 |
| 56 and older | Rates increase further every year |
In the case above, the policy fee of $60 adds 34% to the yearly cost in the first 10 years, so it's important to factor any policy fee into your calculations if you're comparing level term life to annual renewable term. Make sure to get life insurance quotes for 10- or 20-year term life to compare total costs.
Pro: Short coverage periods
If you want short-term life insurance only to cover debts that will be paid off quickly, you may benefit from ART life insurance. That way your family won't be burdened by an unmanageable debt if you die unexpectedly. Annual renewable term life can also be useful for people who must carry life insurance for a short time as part of a divorce decree.Annual renewable term life may also be good if you are between jobs and need a short period of coverage before getting onto an employer's group life policy. But remember, you lose group life insurance if you leave a job. With individual life insurance (such as term life or whole life), the policy is yours no matter what happens with your job.
Con: Premiums increase every year
With an annual renewable term life insurance policy, your first premium payment will most likely be low and appealing, especially if you start the policy at a young age. However, as each year passes, your rates will rise with your age. Even though the premium rises, the death benefit stays the same.
Pro: Guaranteed coverage for many years
Your policy will automatically renew each year unless you cancel it, and you won't be denied renewal for a specific number of years or until a certain age. The policy will outline these timeframes.
Con: You may end up paying more in the long run
If you continue to renew your policy for several years or more, the total amount you pay could exceed the premiums you would have paid if you bought a longer term life policy. If you're uncertain how long you'll need life insurance, you may be better off with a term life policy of 10 or more years. Being able to anticipate your family's life insurance needs will help you pick the right policy.