The earliest life insurance policy on record was issued on June 15, 1583 in London on the life of William Gybbons. It was for a 12-month period.
Life insurance was born as annual renewable term (ART). What ART is is life insurance coverage one year at a time. What this means is the cost of the coverage is projected out but not guaranteed. You find out each year what your premium will be for that given year. Then you decide if you want to keep the coverage. Sounds a bit crazy doesn’t it.
However, if you are looking for to save money on short term coverage you should definitely consider annual renewable term insurance. What do I mean by short term? Well most life insurance companies offer term policies in increments. The most common are 5, 10, 20 and 30 years of coverage. ART is something that you should look at as an alternative to 5 or 10 year coverage.
What annual renewable term insurance can do for you in the short term is save you money and provide the ability to carry your coverage for an extra year or two at a reasonable rate. As anyone who has read their term life insurance policies (anyone?) knows, after your coverage period is up the premiums increase dramatically. This happens with ART as well but since the guaranteed coverage period is one year it happens more gradually over a period of time. In fact, a competitive ART policy only starts to see drastic increase after about 12 years (give or take).
Let’s give you an example:
I chose a life insurance company with a 99 Comdex rating. I’m running a few illustrations for a 35 year old male, in Massachusetts and I’m running them at preferred rates for $1,000,000 of coverage.
For 5-year Term life insurance, this person would pay $510 per year.
For 10-year Term life insurance, this person would pay $700 per year.
Now it gets tricky for annual renewable term insurance but the estimations for the first 11 years (the drastic increase happens in year 12) are: $295, $325, $375, $425, $465, $515, $555, $595, $645, $695 and $775.
This example seems like a bit of no-brainer. There is a bit of a risk though. The future premiums on annual renewable term insurance are not guaranteed, they are projected rates. Only the first year premium is guaranteed. The future premiums could very well increase. However, when thinking about shorter term policies an ART policy could allow you added flexibility of keeping that policy an extra year or two at a reasonable premium. That’s an option you wouldn’t get with traditional term insurance.
It can be a great way to save some money. If you have thoughts or plans to convert to a more permanent policy in the near future this will allow you to minimize the short term costs. The most competitive policies will have full convertibility options as well as the waiver of premium feature just like all other term life insurance policies.
Go ask your financial guy about annual renewable term. When he/she doesn’t know or stumbles, come back here ask your questions, contact me or get an insurance assessment.
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I’d never heard of ARTs. Something else for us to consider, thanks!
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RainyDaySaver:
It’s a must look at if you are considering life insurance for the short term (anything less than 10 years).
Great review of the ART product, I would just warn people about using the ART product to save money today even though they know they have a need for 15, 20 or 30 years of insurance b/c IT CAN GET EXPENSIVE!
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Evan:
You are exactly right. I mentioned it in the post but it can’t be stressed enough, ART is for short term coverage. In the example I used the big jump happened in the 12th year. However, if you are looking at coverage for less than 10 years it might behoove you to at least consider and look at ART.
I too have never heard of ART until recently, it is a great idea. Insurance prices really have gone through the roof the past decade.
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Stock Investing 101:
Thank you for stopping by. Actually, what we’ve seen recently is a decrease in the costs and expenses of life insurance. People are living longer today which gives them more time to use their other insurances (where costs have gone up) but more time before they need their life coverage. This has actually caused rates to have some substantial decreases over the last decade or so. Up until the recent bump in the economy rates were at an all time low and still remain very close to that level. It’s not unusual to find cheaper life insurance today even if you are a few years older than when you took out your last policy.
I’m glad to see this article. I never heard of ART before.
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