Term life insurance policies cover you for a specified period and pay a death benefit to your beneficiaries if you pass during that term. But one type of term policy provides coverage for a year at a time, with the option to renew annually.
Learn how annual renewable term insurance works, when you might encounter it, why you might want it, and why you might want to choose a longer term policy instead.
Definition and Examples of Annual Renewable Term Life Insurance
A term life insurance policy covers the insured person (often the policy owner) for a defined period, commonly one to 30 years. During that time, it pays a death benefit to the beneficiaries listed on the policy if the insured person dies. If your original policy is considered “renewable,” you have the option to continue coverage once the term expires by exercising the renewability provision, typically on an annual basis.
Annual renewable term (ART) life insurance provides one year of life insurance coverage, with the option to renew after 12 months for another year of coverage without having to take a medical exam or provide evidence of insurability. It can be included in your policy as an option to continue coverage once the original term expires, bought as a stand-alone policy, or purchased as a rider on a permanent life insurance policy (so you can increase the death benefit temporarily without having to reapply for coverage). Some policies may allow you to convert your ART coverage to permanent coverage as well.
- Acronym: ART
How Does Annual Renewable Term Life Insurance Work?
The main attraction of ART policies is that you don’t need to prove to the insurance company that you’re considered “insurable” if you want to extend coverage for another year. In other words, you don’t need to answer health questions or take a medical exam. The insurance company prices your coverage each year based on your current age and the health you were in when you first applied.
While many term life policies have a renewable option, carriers typically will not renew past a certain age, such as 80.
ART policies may offer a lower premium than other term lengths, at least initially. However, since your new premium each year is based on your age, an ART policy can get expensive, and is a poor substitute for long-term coverage.
ART policies aren’t as popular as they used to be, since many people choose longer term life policies with a level premium. But they can fill the gap if you need short-term life insurance coverage. An ART policy might be a good choice if you:
- Were laid off and lost your group coverage.
- Work in a dangerous short-term job.
- Just started a new job, but don’t qualify for benefits yet.
- Have short-term debt.
- Recently quit smoking but don’t yet qualify for a non-smoker rate.
- Recently graduated from college and need ultra-cheap coverage until you find a job with benefits.
If you have a longer term policy (such as 30 years) that is renewable, you have the option to continue coverage on an annual basis at the end of the term, or it may automatically become an ART policy if you take no action. This can be a good option if you're unsure of your insurance needs and want more time to explore other types of policies.
Some providers give you the option to add an ART rider to a permanent life insurance policy, which allows you to add a layer of term coverage to your permanent policy at your discretion. In other words, if you need to increase your death benefit, you can do so for a year at a time by exercising the rider without having to reapply for the additional coverage.
Your premiums will increase every year that you continue to renew the term coverage portion of your death benefit. But some insurers may allow you to convert that term insurance to permanent life insurance—also without having to provide evidence of insurability.
Alternatives to Annual Renewable Term Life Insurance
ART policies may be a good option if you need short-term coverage, especially if premium cost is an issue or if the term on your original policy expired and you’ve since developed health problems that would make it hard to find replacement coverage.
But other policies can provide a more stable premium for a longer period of time. For instance, some companies offer five-year renewable term policies that might cost a little more than ART coverage, but let you lock in the rate for five years at a time as opposed to just one.
Still, even longer term policies tend to be a better choice for most people because you can lock in the premium for the length of the term, and some companies offer terms up to 40 years. These policies may also be renewable once their term expires. But keep in mind that your premium can increase exponentially because the rate will be based on your age when you renew. And if you continue to renew, it will increase every year thereafter.
If you’re young and healthy, longer term coverage tends to be very affordable. For example, based on research by The Balance, the average monthly cost of a 20-year $250,000 life insurance policy is only $14.
If you’re interested in maintaining coverage indefinitely, a better option is permanent life insurance. Permanent policies are designed to provide lifetime protection. They pay a death benefit when you die and feature an internal cash account, which you can potentially borrow against or withdraw from. Permanent policies are generally categorized as follows:
Since permanent life insurance costs more than term life coverage, you may want to supplement a permanent policy with a term policy so you can better afford the total amount of coverage you need.
- ART policies provide life insurance coverage for one year and enable you to renew coverage annually without taking a medical exam or answering health questions.
- Longer term policies that are renewable give you the option to renew at the end of their term, often on an annual basis.
- You can purchase an ART rider on a permanent life insurance policy that allows you to increase your coverage, on an annually renewable basis, at your discretion.
- Typically, ART coverage offers the lowest initial insurance rates, but premiums increase annually based on your age.
- ART coverage may be an option for people who need short-term coverage, or have developed health problems and already have a renewable term policy.
- Longer term policies are a better option for most people.