If you want to protect your family or business, annual renewable term life insurance is one product to consider. Mortality is a fact of life. We are all going to die at some point. It may not be something we want to consider but it should be something we prepare for especially if we have dependents that need our financial support.
What will happen to your family when you die? Will they be provided for? Have you asked yourself these questions?
As a husband, a wife or a parent, you need to think about how your family will survive without you. If you provide for them and your death becomes a financial blow to the people you’re leaving behind, you need to secure life insurance. Getting one can help protect your loved ones should a tragedy strike.
Why would someone consider getting life insurance?
There are a number of reasons why people would consider getting a life insurance policy. Our top five are:
- INCOME REPLACEMENT – Financial security for the family left behind is one of the main reasons why people buy a life insurance policy. Knowing that the family will be taken care of to live and maintain their standard of living when you’re gone – especially when your family relies solely on your income – is enough reason to get one.
- PAY OFF DEBTS – Your debts don’t disappear when you die and your family may become responsible for paying those debts. Having life insurance means your family will be left with money to cover outstanding debts such as house mortgage, car loan, personal or credit card loans so that they don’t have to deal with your financial liabilities.
- PAY FOR FUNERAL EXPENSES – Funeral and burial expenses are costly. A death benefit will take care of the funeral costs so your family won’t have to worry about anything.
- PROTECTION FOR FAMILY – We work hard to make sure our family is taken care of. With life insurance, you’re sure that you’ll be providing financial support to your surviving dependents when you leave this planet.
- PEACE OF MIND – The future is unpredictable. In the face of tragedy, life insurance can give you the peace of mind knowing that your family has protection in case something unfortunate should happen to you. Securing your family’s financial future is an obligation and when you’re prepared, you may find yourself sleeping a little easier at night.
Purchasing a life insurance policy is now an essential part of life and a crucial element of sound financial planning. There are some serious benefits to buying life insurance, and one of the many types of life insurance available to help you protect your family is Annual Renewable Term Life Insurance.
What Type of Life Insurance is Annual Renewable Term?
Before we go deep into Annual Renewable Term Life Insurance, let me give you a brief explanation of the kinds of life insurance we have today. Basically, life insurance falls into two categories:
Permanent Life Insurance
Permanent life insurance is structured to cover the person’s entire lifespan and lasts as long as the person lives.
Permanent coverage is intended for a client with long-term needs whether it’s planning an estate or for burial expenses.
Permanent life insurance generally costs higher and can be more complicated but it can also provide more benefits and peace of mind for the policy owner and the policy owner’s loved ones.
Types of Permanent Life Insurance:
- Whole Life Insurance
- Universal Life Insurance
- Variable Life Insurance
- Variable Universal Life Insurance
- Survivorship Life Insurance
Term Life Insurance
Term life insurance lasts for a specific period of time. Term lengths vary and are generally set at five, 10, 20, or 30 years.
A term policy is intended for temporary coverage and is designed to meet the client’s temporary or short-term needs. It is much simpler than permanent life insurance and is generally less expensive, making it suitable for people with a tight budget needing coverage. Term life insurance policies do not build equity as permanent policies do.
Types of Term Life Insurance
- Level Term Life Insurance
- Annual Renewable Term Life Insurance
- Convertible Term Life Insurance
- Family Income Benefit
- Increasing Term Life Insurance
- Mortgage Term insurance
Understanding Annual Renewable Term Life Insurance
Annual Renewable Term (ART) Life Insurance, also known as yearly renewable term (YRT) life insurance falls under the Term Life Insurance category.
This policy guarantees the owner insurability for one year. Think of it as a series of one-year contracts which you have the option to renew yearly up to a certain age.
Basically, the policy owner is purchasing a one-year term plan each year. At the anniversary date, a premium is paid and another one-year term plan goes into effect, but with an increased annual premium.
Like any life insurance policy, an annual renewable term life insurance policy will grant a death benefit to the insured’s beneficiaries if something fatal happens to the policy owner. This type of plan lasts for just one year at a time and offers the most affordable initial premiums.
The catch is that the plan gets more expensive year after year.
An ART policy is initially cheaper in price than a 10 or 20-year level term. However, an early renewable policy will cost more each year and should only be used to save money when the need for life insurance is for a short period of time (one to two years).
The premium amounts for most annually renewable policies are defined when you take out the policy so you can see the pricing in advance.
What You Need To Know About Annual Renewable Term Policies
The basics of annual renewable term insurance are pretty simple but the reasons for and against purchasing this type of life insurance need careful consideration.
When you acquire an annual renewable term life insurance plan, you are getting a one-year term insurance policy with the option to renew every year without having to undergo new medical examinations or health checks again.
Annual renewable term insurance typically offers guaranteed re-insurability for a specified period which is usually 10 to 30 years, on condition that premiums are paid on time.
The thing to know about annual renewable term life insurance is that the annual premium periodically adjusts when renewed, and this is probably what bothers most people.
Generally, gradually increasing premiums go up as age does. The explanation for this according to insurance agents is that the premium for that one-year term policy is calculated with the correct rate for that particular age.
The good thing about this kind of life insurance plan is its low premiums. The reason being is because the coverage is only for a short period, and the insurance company is assuming the least risk. This is agreeable to some people looking for a life insurance plan because even if the plan is temporary, it’s an affordable way to cover the family’s needs.
Advantages and Disadvantages of Annual Renewable Term Life Insurance
- Affordable Premiums – ART life insurance is inexpensive and budget friendly which is why it’s appealing to most people.
- Renewable Policy – ART life insurance declares the renewal term. The plan also specifies the maximum number of times it can be renewed as well as the maximum age.
- Economical Asset Protection – ART life insurance will pay off mortgages or loans acquired by the insurance holder in the event of his or her death.
- No Re-qualifying Necessary – with ART life insurance, re-qualifying is not required. In the case where the insurance holder gets terminally ill, the insurance company cannot reject or refuse his or her renewal application.
- Guaranteed coverage for many years – with ART life insurance, your policy automatically renews each year except if you cancel it, and you won’t be denied renewal either until a certain age.
- Covers time specific needs – ART life insurance helps to cover time specific needs such as mortgages, education costs, business loans or car loans.
- Can be converted to a permanent plan – ART life insurance has the conversion option that allows the insurance holder to obtain an equal amount of permanent life insurance without showing evidence of good health.
- Higher Premiums in Later Years – With ART policy, the premium rates become relatively higher as the plan holder ages, and there may be a point when the policy becomes too expensive.
- No Investment Component –The money does not build equity with ART policy. If the plan holder dies within the term of coverage, the beneficiaries collect a payout but if the plan holder stays alive within the term, then the policy and its benefits just expire.
- Limited coverage term –ART policyholders are only insured for a short period of time.
- May end up paying more in the long run – Continuously renewing your policy for more than a few years could mean you’ll be paying more than the premiums you would have paid if you bought a longer-term life policy.
- Few companies offer Annual Renewable Term Coverage – Not all companies offer ART coverage which means you’ll have much fewer options to choose from compared to other term products.
- Lack of value and flexibility
Who Should Get Annual Renewable Term Insurance?
An annual renewable term policy is intended for people to use for a short period of time – possibly a two-year period. This policy is ideal for people with an immediate need to be insured since it will only cover them for the time they need it.
- People who took out a loan for a new business venture and are looking to pay off the loan in two years or less while protecting their loved ones from being burdened by debt in case something happens to them.
- People who are looking to get life insurance for a short period of time that fits a limited budget.
- People with risky jobs.
- People who do not want the trouble or inconvenience of having to prove they are insurable every time they renew their policy.
- People who can’t afford a long-term policy at the moment.
- People who want to acquire life insurance but are not sure of what kind of coverage to get.
What to Look For in an Annual Renewable Term Policy
- The policy term – check for rates. In general, shorter terms come with much better rates.
- Guaranteed level premiums – not all insurance companies offer a policy that guarantees level rates through the term period. Make sure the one you’re negotiating with does.
- Conversion to cash value – just like guaranteed level premiums, this feature is not available to all insurance companies. Look for one that does not require you to undergo medical checks when you convert.
- Optional benefits and riders – you should be able to customize your protection to meet your goals.
Choosing the best type of life insurance to buy is an important decision because you’re looking for something that can protect your family from the worst. But with the many types of life insurance and the many options out there, searching for the right one can be overwhelming.
Analyzing how premiums are controlled is a crucial element in the decision process, but when shopping for insurance, you need to evaluate the current and future needs of your family as well. This will help you choose the plan that’s best for you.
Annual renewable term life insurance is for the short run. It’s not really a popular insurance option but it’s an affordable way to protect your assets and provide you with the peace of mind at the same time. In fact, it’s the cheapest type of coverage you can buy. While it’s not for everyone, it certainly is something to consider when making your decision.
If you can’t afford a permanent life insurance policy, consider getting an annual renewal term plan. Although it lacks the potential cash value of permanent life insurance, it does provide financial support for your dependents in the case of death.
In the end, an annual renewable term policy might just be the right choice for your current situation, whatever that may be.
Call us at (888) 435-4342 to help you understand your options. At Life Wealth Win we work with clients across the nation, and we can help you get the best life insurance rates possible.