Quick answer
Annual renewable term (ART) life insurance starts at the lowest possible first-year premium and resets the rate higher each year as the policyholder ages. The death benefit stays level for the life of the policy, but the premium climbs each policy anniversary. ART is the right choice ONLY for short-term coverage needs of 1 to 5 years: a bridge while waiting on a fully underwritten policy to be issued, a temporary business loan, or a single-year obligation. For any obligation longer than 5 years, level term is almost always cheaper in cumulative cost. ART premiums double or triple between ages 35 and 55 and become prohibitively expensive in the 60s and 70s.
What is Annual Renewable Term Life (ART) Insurance?
Annual renewable term, or ART, insurance falls under the term life umbrella. Term life insurance provides coverage for individuals over a period of several years, at the end of which coverage is canceled or expires. ART life insurance, as its name suggests, has a term of one-year yet is renewable at the end of each annual term. Policyholders don’t have to reapply or submit to any additional medical exams to confirm insurance eligibility.
What Are the Benefits of Annual Renewable Term Life Insurance?
For individuals who don’t require whole life or long-term life insurance coverage, an ART policy works. For instance, a person who’s recently been laid off from work or has otherwise lost insurance coverage is a good candidate for ART insurance, especially if they plan to sign up with a future employer’s group life insurance plan once employed again.
Some of the benefits of an annual renewable term life policy include:
- You can choose your benefit.
Once you’ve been deemed insurable, you can choose the benefit amount that your beneficiary receives. You can also choose your benefit amount based on the monthly or yearly premium associated with each benefit tier. - Policies are renewable.
Once you’ve established a policy, you can renew that policy every year for as long as you choose, and you never have to fill out another application or submit to another examination. If you decide you no longer want or need your policy or you want to research other types of life insurance, you can drop your ART policy at the end of the term. - Premiums are low.
Especially during your first year of coverage, policy premiums are lower than premiums for long-term policies. That said, ART policy premiums increase annually, and while premium increases are rather minimal during the first few years of your policy, they will rise substantially in subsequent years as you age. - Policies are flexible.
Annual renewable term policies are perfect for individuals who only need to bridge a coverage gap or require coverage for shorter periods. - Renewals are fast and easy.
As long as you always renew for the upcoming term while your current policy is still active, there are no further medical exams necessary. - You can customize your coverage.
Just like a traditional term policy, many insurance providers let you add some of the more common riders to your policy. - No medical exam options.
There are many ART life insurance policies without a medical exam to choose from. By its nature, ART policies are short-term and are less risky to insurance companies.
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What Are the Negatives of Annual Renewable Term Life Policies?
As fantastic as they sound, an annual renewable term life insurance policy might not be right for everyone. Some of the disadvantages of these policies include:
- Annual rate increases.
Every year, your policy premium will increase in line with your current age. - Age limits.
As a short-term product, ART policies cannot be renewed past a certain age. This age cap is different from state to state. Once you age out of ART coverage, you’ll have to find a different type of policy. If you are unable to medically re-qualify for life insurance, your only option may be a guaranteed acceptance life insurance policy with no health questions.
What Are the Cost Differences Between Annual Renewable Term Life and Level Term Life?
When your policy provider calculates your premium, they look at the chances you may die during that coverage period. As time goes on, those chances increase, leading to much higher policy premiums the older you get.
Your ART insurance provider will supply you with a premium schedule. This illustrates the highest rates by age for every year of your policy. It helps you plan ahead for upcoming increases in renewal payments. With Level Term policies, your rates do not increase for the life of your coverage.
If you’re young, in relatively good health, and need coverage for a few years, ART policies are more cost-effective. If you need coverage for several years, it might be a better financial decision to opt for traditional term coverage.
Does ART Life Insurance Expire?
Yes, ART policies expire annually. You need to renew your policy with your provider prior to your current term’s expiration date to continue coverage.
As a short-term product, ART policies cannot be renewed past a certain age. This age cap is different from state to state. Once you age out of ART coverage, you’ll have to find a different type of policy.
Is Annual Renewable Term Convertible?
Yes. While the specifics vary depending on your ART policy provider, you can convert your annual renewable term life policy to a whole life policy either in your first few years of holding the policy or when you turn 65. Check with your insurance provider for specific details.
Who Are the Best Candidates for ART Life Insurance?
Many people look at life insurance as a 20- or 30-year need. The individuals best suited for annual renewable term life insurance:
- Are young and healthy
- Only require short-term insurance coverage
- Require instant life insurance for a court order or loan
- Aren’t concerned about retirement yet or paying off a mortgage
- Either do not have children or their children are grown and financially independent
Who Should Not Get Annual Renewable Term Life Insurance?
On the other hand, there are better options depending on your personal situation. ART life insurance isn’t the best option for individuals who:
- Are older or have current health problems
- Need long-term insurance coverage
- Those over 65 planning on using the life insurance for final expenses
- Are planning to head into retirement soon
- Are still paying on a mortgage
- Have children still living in the home or otherwise financially dependent
Frequently Asked Questions
What is annual renewable term life insurance?
Annual renewable term (ART) life insurance is a term policy that starts at the lowest possible first-year premium and resets the premium higher each policy anniversary based on the insured's attained age. The death benefit is level for the life of the policy. ART is sometimes called yearly renewable term or "stair-step" term because the rate climbs every year. ART is most often used as a short-term gap fill rather than as a primary income-replacement policy, because the cumulative cost over a 5 to 10-year horizon exceeds the cost of a level-term policy.
How much does annual renewable term life insurance cost?
A healthy 35-year-old non-smoker can buy $500,000 of ART for roughly $11 to $15 a month in year 1, which is 30 to 40 percent cheaper than the first-year cost of 20-year level term. The premium then resets each policy anniversary: roughly $14 a month at age 40, $22 a month at age 45, $40 a month at age 50, $80 a month at age 55, and $160 a month at age 60. Over a 10-year window starting at age 35, the cumulative cost of ART is typically 50 to 100 percent higher than the cumulative cost of 20-year level term locked at age 35.
When is annual renewable term life insurance the right choice?
ART is the right choice in three specific scenarios: (1) bridge coverage - you have applied for a fully underwritten level-term policy and want low-cost interim coverage for the 2 to 6 weeks until the policy is issued, (2) short-horizon obligations - a single-year business loan, a one-time event, or a temporary high-risk job that ends in 12 to 24 months, and (3) policy expiration continuation - your level-term policy expired and the carrier offers ART continuation without a new medical exam, useful as a stopgap while you arrange replacement coverage. ART is NOT the right choice for primary income replacement covering a mortgage, children, or a multi-year breadwinner obligation.
Is annual renewable term cheaper than level term?
Only in year 1. ART first-year premium is 30 to 40 percent below the first-year premium of a 20-year level term policy for the same age and coverage. Starting in year 2 the premiums diverge: ART climbs each year while level term stays flat. By year 5 the ART premium typically exceeds the level term premium. By year 10 the ART premium is 3 to 5 times higher than the original level term premium. Cumulative cost over 10 years is typically 50 to 100 percent higher with ART than with 20-year level term for the same coverage.
Can I convert annual renewable term to a level term policy?
Most carriers offer a conversion option that lets you exchange ART coverage for level term or permanent (whole or universal life) insurance without a new medical exam. The conversion window is typically the first 5 to 10 years of the ART policy or before a maximum age (typically 65 or 70). The new policy is issued at the original health class but at the current attained age, so the premium is higher than it would have been at original issue. Banner Life, Protective, and Pacific Life have notable conversion provisions for their ART products.
What is the difference between annual renewable term and yearly renewable term?
They are the same product. "Annual renewable term" (ART) and "yearly renewable term" (YRT) are interchangeable industry terms for a term life policy that renews automatically each year at a higher premium based on the insured's attained age. Some carriers use ART, others use YRT, and a few use "yearly term" as the marketing name. All three names describe the same structure: level death benefit, attained-age premium reset each year.
Why is annual renewable term used in group life insurance?
Group life insurance plans offered through employers are almost always structured as ART because the employer pays the premium and the carrier needs the premium to reset each year to match the employee's aging risk profile. Some group plans pool the premium across the employee base so the individual employee sees a flat rate, but underneath the group contract the carrier is using yearly renewable pricing. When an employee leaves the group plan and "ports" their coverage to individual coverage, the ported coverage is usually individual ART with sharply higher premiums.
Is annual renewable term a good fit for seniors?
No, ART is usually a poor choice for seniors because the premium resets each year to an attained-age rate that climbs steeply between ages 60 and 80. A 65-year-old buying $250,000 of ART pays roughly $250 to $400 a month in year 1 and the premium can exceed $1,000 a month by age 75. Seniors are usually better served by: (1) a guaranteed universal life policy with lifetime fixed premiums, (2) a 10-year level term policy if a defined obligation ends in 10 years, or (3) a guaranteed issue final expense whole-life policy for $10,000 to $25,000 of coverage to cover burial expenses.
Does annual renewable term have cash value?
No. Like all term life insurance, ART is pure protection with no cash value, no surrender value, and no investment component. 100 percent of the premium goes toward the death benefit and carrier expenses. If you stop paying the premium, the policy lapses after the grace period and there is no refund. Permanent policies (whole, universal, indexed universal, variable universal) accumulate cash value but cost significantly more per dollar of death benefit.
Can I get annual renewable term without a medical exam?
Yes. Most carriers offering accelerated underwriting issue ART without a paramedical exam for healthy applicants. A few carriers (Mutual of Omaha, Foresters, AIG Direct now Corebridge) historically offered ART specifically as a no-exam first-year product. Decisions are returned in 1 to 3 business days. Rates with no-exam underwriting are equal to or slightly higher than a fully underwritten rate. For most buyers, the better strategy is to buy 10-year or 20-year level term with no-exam underwriting rather than ART, because the level-term cumulative cost is lower for any obligation longer than 1 to 2 years.
