What Is Yearly Renewable Term Life Insurance?
Yearly renewable term (YRT) life insurance, also known as annual renewable term (ART) insurance or renewable term insurance, is one variety of term life insurance.
Term life insurance remains in force for a specified number of years, usually between one and 30. A term life policy will only pay out a death benefit if the policyholder passes away during the policy’s term.
What sets YRT apart from other types of life insurance is the short term and easy renewability of the policy. A YRT policy has a term of only one year, but the policy can be renewed each year, usually without providing proof of insurability.
Yearly renewable term policies are most useful as a bridge to a longer traditional term policy or a permanent policy. If you think you’ll need insurance longer than a few years, traditional term policies may be more affordable.
Stephen Kates, CFP®Founder of Clocktower Financial ConsultingStephen Kates is a Certified Financial Planner™ and personal finance expert specializing in financial planning and education. Stephen has expertise in wealth management, personal finance, investing and retirement planning.
How Does Yearly Renewable Term Life Insurance Work?
Renewable term life insurance is usually specified by a clause in the policy’s contract. The clause guarantees that the policyholder can choose to renew their policy at the end of the term and won’t have to provide evidence of insurability if the premium is paid.
Insurance customers may have the option to add a renewable clause to their policy even if the term is not annual.
A yearly renewable term life policy has an unusually short term of only one year. Each year, your insurance company will inform you of the new premium amount you’ll pay to renew the policy for another year. Because premium rates are calculated based on age, you’ll pay a higher premium each year you renew.
The renewal process is pretty automatic, says Earl Jones, a licensed agent with Farmers Insurance. Your insurance provider won’t require you to undergo a medical exam, Jones says, unless your policy has lapsed, which typically occurs 60 days after coverage ends.
Pros and Cons of Yearly Renewable Term Life Insurance
A YRT life policy can offer a flexible and low-commitment way to get life insurance coverage, but you may find that the drawbacks of this type of insurance outweigh the benefits. Before you decide to purchase a life insurance policy, consider its advantages and disadvantages.
Advantages
The short term of a YRT policy is a significant benefit for some consumers. Most term life policies start at five years, so if you need coverage for less time than that, a YRT policy makes sense.
The initial premiums of a YRT policy might be more cost-effective. Because you’re only paying for one year of coverage, the premium for a new YRT policy is inexpensive compared to most term life premiums.
Disadvantages
The biggest disadvantage of YRT life insurance is the increasing premium costs. As chartered life underwriter Natasha Cornelius told Annuity.org, “Renewal premiums are much higher than the initial fixed rate. Each year the policy owner chooses to renew, the premiums will increase.”
Because of this, YRT life insurance may not be the most cost effective choice if you need coverage for several years. Eventually, the premiums will become so expensive that you would have been better off purchasing a traditional term life policy.
Is Yearly Renewable Term Life Insurance Right for You?
Renewing your life insurance each year might make sense if you don’t want to keep your coverage for a long time, according to insurance agent Zhaneta Gechev. For example, if you’re in good health and only need coverage for a few years while your children go through college, Gechev says renewing might be a sensible choice.
Some consumers also use a YRT life policy as a bridge towards a longer-term policy. For example, if you recently quit smoking, getting a term life policy could still be prohibitively expensive. A YRT policy can make sure you’re still covered while you wait until you won’t be charged a higher premium for tobacco use, usually two years after you quit.
An annual policy might also make sense for people who are between jobs. If you are going from one employer-sponsored life insurance plan to another, there might be a waiting period in between where you don’t have coverage. The temporary YRT policy helps fill in the gaps between coverage.
