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What Is Annual Renewable Term Life Insurance?

An annual renewable term life insurance policy is a form of term life insurance. With a typical term life insurance policy, you pay premiums each month for a set period of time, or term, which is usually 10, 20 or 30 years. If you die within that timeframe, your death benefit is paid out to your beneficiaries. 

Annual renewable term life insurance is a bit different: It only lasts for one year, and the policy is renewed when the year is up. This continues for a set number of years, and the premiums may go up each time the policy is renewed.

Benefits of Annual Renewable Term Life Insurance

Annual renewable term life insurance allows the policyholder to renew their policy each year up to a certain age without having to reapply or take another medical exam to confirm eligibility. The maximum age limits vary by state. In New York, for example, the age limit is 80. 

Annual renewable term life insurance policies are generally the least expensive form of insurance plans available; however, the premiums typically rise with each renewal period as the policyholder ages.

How Annual Renewable Term Life Insurance Works

An Annual renewable term life insurance policy works like a term life insurance policy, but with three key differences: 

  • The premiums for a renewable term life insurance policy start lower than those for traditional term life policies.
  • Each time your policy is renewed, your premiums increase. 
  • The term lasts one year, and the policy is renewed for another term at the end of that period for a set number of years. 

Traditional term life insurance plans typically have guaranteed level premium, which means your rates at the time of purchase remain the same throughout the life of the policy. Your premiums only increase if your plan lapses and you try to buy the same policy again. With an annual renewable term life insurance policy, your premiums start out low and increase as you age; essentially your premium is calculated based on the risk you will die during that coverage period. 

Who Might Consider an Annual Renewable Term Policy?

Annual renewable term life insurance is a good option if you’re between jobs and need short-term coverage before you’re eligible for a new employer’s group life policy. 

This type of policy may also be a good option if you have poor medical conditions that might improve over time or are a smoker but plan to quit. Remember that life insurance premium rates are calculated based on age, health and lifestyle, so as your health improves, your premiums may decrease.

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