What happens to the premiums for renewable term life insurance as an insured gets older?

The most popular form of term life insurance is level term. Level term insurance provides a level death benefit and charges a level premium for the duration of the coverage term. During the term of coverage, neither the death benefit nor the premium change. Whatever the length of the term, at the end of that time, the coverage expires and the protection ends. The term can be for a set period of years (5-year term, 10-year term, 20-year term, etc.). It can also be set for a specified insured age (term-to-55, term-to-65, etc.).

For example:

A $200,000 level ten-year term policy provides $200,000 of coverage for ten years. The premium for the coverage stays the same for each of the ten years. At the end of the ten-year period, the insurance coverage expires.
A $200,000 term-to-65 policy provides $200,000 of coverage until the insured reaches age 65. The premium for the coverage stays the same until the policy ends at the insured's age 65.

You may have heard of 10-, 20-, or 30-year term life insurance, but did you know you have another alternative called annual renewable term life insurance?  In this post, we will answer the question: what is a renewable term?

I will explain the annual renewable term, pros & cons, and pricing compared to a level term life insurance. We will also identify why you might opt for a renewable term life policy instead of choosing a term life policy that will keep you covered for longer. 

Whether you are looking for a short term solution for annual renewable life insurance or are looking to secure a longer-term affordable term life insurance policy, by using our free quote generator you can get an actual annual renewable term life insurance quote in just seconds.  Get started now. 

• What is annual renewable term insurance?
• How Yearly Renewable Term Works
• Why on earth would someone buy ART?
• Level Term Life vs. Annual Renewable Term
  • ART vs. 10-Year Level Term Insurance
  • ART vs. 20-Year Level Term Insurance
  • ART vs. 30-Year Level Term Insurance
• Schedule of Premiums — Life Insurance Illustration
• Annual Renewable Term Life Insurance: The Bottom Line

What is annual renewable term insurance?

Annual renewable term (ART) is temporary protection for a duration of one year. With 1-year renewable term life insurance, you will not need to take an exam or go through the life insurance underwriting process again. Instead, your coverage is automatically renewable by paying your premiums.

Usually, annually renewable term life insurance’s premiums increase every year.

• With annual life insurance that renews each year, the premiums will be determined based on your attained age. The premiums gradually increase as you get older.
• Most ART expires when the insured reaches the age of 95.
• ART policies are fully convertible to term life insurance policies or are fully convertible to whole life or universal life insurance in the first few years, or when the insured reaches 65 (depending on the carrier and the policy).
• The life insurance death benefit remains level (the same) throughout the renewal years.
• With most companies, only the annual payment mode is available. You will not be able to pay monthly or quarterly.

Annual renewable term life insurance is a good interim solution if you have dropped one policy and are shopping for another or had a policy through one employer’s benefits and will assume a policy from a new employer’s benefits soon. According to III, the annual renewable term has lost popularity as a longer-term insurance solution to 20-year term life policies.

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How Yearly Renewable Term Works

The annual renewable term, just like traditional term life insurance, will pay a death benefit to your beneficiaries if you pass away during the time in which the policy is active. When can a renewable term life policy be renewed? The period of insurability guarantees that you be able to renew your policy each year even if your health deteriorates. AAA annual renewable term life insurance covers a 10- to 30-year coverage period.

What happens when the year term of an annually renewable term policy expires?

Your death benefit amount will remain the same with each annual renewable term but your premiums will rise each year as you get older and your risk increases. So, unlike decreasing term insurance where your benefit will decrease over time along with your premiums, you will be paying more for the same amount of insurance benefit each year. 

With most companies, you can add riders to your policy, like terminal illness or a disability rider. Pay attention to the convertibility option, since not all companies offer that and there is an age restriction in which you can take that option.

Why on earth would someone buy ART?

It’s a good question, and I’ll start with the obvious. Level term insurance and whole life provide insurance for prolonged periods because those who buy these coverages are interested in income replacement or estate planning, which require a continued period of protection.

For others who are only looking for a short-term protection, the annual renewable term is an excellent choice. Here are a few other reasons:

1. They have a current policy in force but need a supplemental coverage for a short-term loan or expense.
2. They need to fill an employment gap because they are in between jobs. The future position will offer a group life insurance plan.
3. Initially, ART premiums are lower when compared to a 10- or 20-year term. For some who have a few years left to retirement age (typically less than five), buying a 10-year term will cost more than buying yearly renewable term.
4. When smokers apply for life insurance, they may pay three to four times as much as non-smokers. With most carriers, they need to be smoke-free for one to three years before getting the preferred non-smoker rate. If you just quit smoking, it may be a good idea to buy a short-term policy, and after a year, you can apply for a traditional term and get the non-smoker rate (as long as you quit the bad habit).

Be aware that if you are able to get a proper term life policy for even a 10-year or 20-year term, you will likely save more in the long run.

Level Term Life vs. Annual Renewable Term

I’m sure you are curious to see if you could save money by buying annual renewable term life insurance versus purchasing 10-, 20- or 30-year term life insurance. Rather than seek out an annual renewable term calculator, check out the table below, taken from Prudential, in which I compare the premiums of ART and 10-, 20- and a 30-year term.

ART vs. 10-Year Level Term Insurance

As you can see from the annual renewable term table below, a 40-year-old male in a preferred health class will have a starting payment on ART of $265 while the starts at $445. However, as the years go by, especially the third year onwards, the premiums on ART are more expensive.

Even for a shorter term of 10 years, you save considerably against rates for an annual renewable term policy.

ART vs. 20-Year Level Term Insurance

On this chart, the same 40-year-old male will save money on ART for the first three years when compared to 20-year term life insurance. In the fourth year, he will pay $970 per month while the level term the premium of $475 will remain the same for 20 years.

As you can see, the longer the term, the more you save over the duration of coverage.

ART vs. 30-Year Level Term Insurance

The same goes for this chart. The savings on ART are only for the first three years when compared to a 30-year term. By the fourth year, you will be paying $970 while the 30-year offers a level premium of $665 for 30 years.

If you can qualify for a 30-year term policy and you know you will need the coverage for at least that amount of time, you can save well over $100,000.00 by securing a proper term policy instead of renewing annual term year over year.

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Schedule of Premiums — Life Insurance Illustration

You will not be surprised or shocked by the increased premium cost every year. By law, the insurance company is required to provide you with an illustration. The illustration shows the maximum premiums for each year, total premiums paid every five years, and the death benefit.

The insurance carrier cannot charge you a higher premium than what you see on the illustration. Below, I’ve included a sample chart with a schedule of premiums.

Annual Renewable Term Life Insurance: The Bottom Line

We hope this article has helped you to understand annual renewable term policies. 

For most people, traditional long-term protection is the right solution when buying life insurance. The premiums remain level for 20 or 30 years, and they don’t have to think about the new premium every year. The longer-term length you buy, the longer your premium is fixed, and if you decide that you no longer need the policy, you can always drop it.

Does term life insurance automatically renew? If you are concerned about renewing your term policy, you should consider that although an annual renewable term policy renews each year, your conversion options will be more limited each year as you pricing goes up. 

With a good affordable term life policy, not only will you lock in a great rate, but most policies today are convertible to universal term life insurance or other whole life insurance options. 

Ready to buy annual renewable term life insurance? See how annual renewable term compares to longer-term life insurance for you. Get a free quote right now to find affordable annual renewable term life insurance and to learn which annual renewable term life insurance company is the best for you.

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Ron Attias is a licensed insurance broker. He has no particular loyalty to any one insurance company, so he is able to shop all major insurance carriers. This means that you always get the BEST plan at the LOWEST price. Each plan can be customized to fit your specific healthcare needs and budget. Full Bio →

Written by Ron Attias Licensed Insurance Broker

Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o... Full Bio →

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