When Should You Consider Annual Renewable Term Life Insurance?
When most people sit down to decide how long they need term life insurance coverage, the typical thought is to go out 20 or 30 years. In most cases, a 20 or 30 year policy will ensure coverage lasts until retirement, the mortgage is paid off or children are no longer financially dependent. Locking in a rate for the long term is usually the best way to go. But what if you only need coverage for a short period of time? What if you can’t afford to buy a 20 or 30 year policy at the moment but you still need coverage? Luckily, you could opt for annual renewable term life insurance (ART). In this post, we will explain when you should consider annual renewable term life insurance.
How Does Annual Renewable Term Life Insurance Work?
Annual renewable term life insurance allows you to purchase one year of coverage at a time without having to reapply or take another medical exam. You simply renew your policy each year within a specified window and you can continue to receive annual coverage. Unlike level premium term coverage, ART rates gradually increase each year as you get older. Annual renewable term coverage is underwritten just like traditional level term insurance. You can also add riders to an ART policy and convert it to a level term policy or permanent policy in most cases as well.
When Should You Consider Annual Renewable Term Life Insurance?
You Only Need Coverage for a short Period of Time – There are cases where you might only need coverage for a short period of time such as to cover a personal loan. If you only need coverage for a few years, ART will most likely be your best option. ART is a much better option than purchasing a 10 year policy if you are only going to need coverage for a few years.
You Can’t Afford a Long Term Policy Right Now – Initially, an ART policy will cost you less than a 20 or 30 year term policy or permanent coverage. If you can’t find room in your budget for longer duration coverage, buying an ART policy might make sense until you can afford to lock in a long term rate. Most ART policies will allow you to convert your ART coverage to a 20 or 30 year term policy or permanent coverage. If you need to buy yourself a couple of years until you can afford long term coverage, an ART policy is a good choice.
You’re Not Sure What Kind of Coverage You Want – You know that you need coverage, but you are not sure what type of coverage you want for the long term. Instead of putting off getting coverage and running the risk of dying without it or suffering a setback in your health, you could purchase an ART policy as a placeholder until you decide what type of coverage you want. Once you decide, you can either convert your ART coverage or you could get a new policy with a different company if you are in good health.
Drawbacks to Annual Renewable Term Life Insurance
Rates Increase Each Year – ART rates increase each year as you get older. Rate Increases aren’t really an issue if you only keep the policy for a short period of time, but holding an ART longer term could be costly compared to locking in a long term rate.
Not Many Companies offer Annual Renewable Term Coverage – If you are looking for longer duration term or permanent insurance, you have many choices available. Not all companies offer ART coverage, so you will have fewer options to choose from compared to other term products.
Annual Renewable Term Coverage versus 10 Year Level Term
Here is an example of how an ART policy stacks up against a 10 year term policy. The annual rates are for a 40 year old male non-smoker applicant in excellent health. ART rates are from American National Insurance Company and the 10 Year Level Premium Rates are from MetLife.
AGE ART Coverage 10 Year Level Term Coverage 40 $170 $194 41 $195 $194 42 $215 $194 43 $235 $194 44 $260 $194 45 $295 $194 46 $330 $194 46 $365 $194 48 $395 $194 49 $425 $194 TOTAL PREMIUMS PAID $2,885 $1,940
As you can see, the ART coverage is less expensive over the first few years but ends up costing almost $1,000 more than the 10 year level premium policy over a 10 year period. The savings from a level premium term product would be even greater if coverage was to last longer than 10 years. ART coverage is generally a good option compared to level premium coverage if coverage needs are for only a short period of time.
Is Annual Renewable Term Life Insurance the Right Fit Fir You?
If you think that annual renewable term life insurance might be a good fit for your situation, we can help. We know which companies offer the best rates on ART coverage. We can also do a cost analysis for you to determine if ART is the right option for you compared to a level term product. If you have any questions, please feel free to call us at 888-687-9444 or email us at info@archstoneagency.com.
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com.
