Annual Renewable Term Life Insurance (ART)

A yearly renewable term life insurance is a one-year term life insurance policy. This policy is in effect for the policyholders' purchasing year. When purchasing a yearly renewable term life insurance, the premium is specified for a one-year term commencing in the current year.

To understand what annual renewable term life insurance (ART) is, let’s look at the term itself.

‍There are three keywords in it:

• Annual (meaning the policy lasts one year);
• Renewable (indicating you can renew the policy after it expires— which, by default, is one year); and
• Term life (that is, the policy lasts for a fixed period or term).

This means yearly renewable term life insurance is a one-year term policy that you can renew at the end of each year. You do not need to submit proof of insurability to renew the policy.

In most of the insurance company, annual renewable insurance is relatively cheap, but your premiums will go up every year or after every few years because your mortality risk increases with age.

Given its affordability, an yearly renewable term life insurance can be an attractive option when you are on a budget. But eventually, you may want to switch over to a traditional term life policy that lets you lock in low rates for 10-30 years.

How does ART life insurance work?

With an annual renewable policy, the insurer sets your premium rate based on your current age, health status, and the preferred coverage amount. You are automatically eligible to renew the policy after one year without having to undergo a new health evaluation.

ART policies offer two main benefits:

• Premium wise, which is usually the cheapest life insurance policy option in the short run
• You do not need to answer health questions or take a medical exam to renew the policy(still recommend annual medical exam for your own health)

ART policies are cheaper than other term lengths initially, but eventually, turn out to be more expensive. As a result, it is an attractive short-term solution.

An ART policy can make sense in certain situations:

• You lost your job and the group coverage along with it
• You are working in a high-risk job for a short period, ART policy death benefit to protect your loved ones while you are exposed to occupational hazards.
• You want to cover a short-term debt
• You have recently quit smoking, but will not qualify for non-smoker rates for a couple of years
• You want a super cheap life insurance policy until you find a job with benefits
• Recently quit smoking, can't get non-smoker rates yet. ART policy offers cheaper death benefit than traditional policies for smokers, given healthier lifestyle as a non-smoker, thus benefiting your personal finance.

While annual renewable term life insurance can be a viable choice in certain situations, it's important to note that for many individuals, a 10-30-year level term policy is often more cost-effective in the long run in most of the life insurance company.

The term "level" in level term insurance signifies that your premium remains consistent throughout the duration of the policy. By purchasing a 20-year term policy at an early stage in life, you can secure low rates that remain unchanged for the next two decades. This offers stability and financial predictability, making level term insurance an attractive option for those seeking long-term coverage at affordable rates.

What affects the cost?

Your life insurance premium rate reflects the kind of risk you present to the insurer — that is, your chances of dying within the policy term. Insurers assess the risk of insuring you through a process called underwriting, in which they closely study your health and wellbeing. They reward young and healthy applicants with lower premiums.

Yearly renewable term life insurance premiums depend on the likelihood of death within the upcoming year. As you age or develop health conditions, the risk increases, leading to higher premiums.

In contrast, a traditional term life insurance policy establishes premiums based on your age and health when purchase. This means that a 40-year-old applicant may receive similar rates as they paid 15 years earlier, while a 45-year-old signing up for a renewable policy would face significantly higher premiums due to the increased age and associated risks.

Who should get an Annual Renewable Term Life Insurance?

A traditional term policy is a better option thanks to its level premiums and stability. However, in certain situations an annual renewable policy could make sense, such as when:

You cannot afford a regular term life insurance policy:

It's worth noting that annual renewable term life insurance tends to be the least expensive option in terms of premiums. Therefore, if you have budgetary constraints, opting for a renewable term policy can provide you with the necessary coverage until your financial situation improves.‍

You want coverage for a short period:

‍Do you have a short-term loan that you want to cover? Whether you have a short-term loan that you wish to protect or if you're undertaking a high-risk job for a limited duration, this type of policy can provide the necessary financial security.

You are working hard to improve your habits or health:

‍A Life insurance company or life insurance provider might offer you standard rates if you give up a harmful habit, like smoking, or improve your overall health. However, you can qualify for lower rates only if you can show improvement for 12 months or more. A yearly renewable term policy can be a good stop-gap arrangement.

The problem with the yearly renewable term life insurance is that the monthly cost increases each year or every couple of years. As a result, most people may find it extremely difficult to afford it a few years down the line.  

How is ART different from term life insurance?

Both annual renewable term life insurance and other term life insurance policies are temporary in nature. Nevertheless, there are several key differences between them.

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Alternatives  

If you need life insurance provider to provide a life insurance coverage for a very short-term, an yearly renewable term life insurance may be a suitable option. For instance, if you need a life insurance policy to cover a short-term loan, you may consider buying an ART policy.

However, other life insurance policies offer a stable rate for a much longer period. For example, some insurance carriers offer five-year renewable life insurance coverage that is only slightly more expensive than a comparable ART policy. Such a policy lets you lock in low rates for five years as opposed to only one.

Having said that, longer-term life insurance coverages are likely to prove to be a better option for most people, especially if you purchase while you are young. You can lock in better rates for 30 years or even more. For example, the average monthly premium for a $250,000 life insurance policy for a 20-year-old may be as low as the cost of a large pizza!

If you want a life insurance policy without an end date, consider permanent life insurance. Permanent life insurance lasts as long as you do, provided you pay premiums on time. Some permanent life insurance include a savings component, giving you access to a tax-deferred fund that you can access during your lifetime.

How to buy Annual Renewable Term Life Insurance?

Since not all Canadian insurers offer Annual Renewable Term insurance (ART), it's important to be aware that your options may be somewhat limited. However, you can rely on Dundas Life to assist you in finding the right insurer that offers ART coverage. Whether you are specifically interested in an ART life policy or considering a conventional term policy, our team is dedicated to helping you gather multiple quotes from various insurers. By providing you with a range of options, we ensure that you have the necessary information to make an informed decision efficiently and effectively. Contact us today to receive personalized assistance in selecting the most suitable term policy for your needs.

Conclusion

Annual Renewable Term insurance (ART) is a distinctive life insurance product that offers coverage for a one-year period, with the opportunity to renew the policy annually at an increased premium. This type of coverage provides flexibility and affordability, as policyholders can secure life insurance without undergoing a medical exam. While a standard term life policy may be more suitable for many individuals, there are specific scenarios where an ART policy can be advantageous in adapting to evolving needs and budgetary considerations. The death benefit remains constant throughout the policy term, ensuring financial protection for beneficiaries in the event of the insured's passing.

To determine the most appropriate term policy for your circumstances, it's recommended to consult with a Dundas Life expert. Our team is dedicated to helping you find optimal coverage that aligns with your needs and budgetary considerations. Contact us today to explore the best options available to you.