Term Life Insurance Articles
Annually Renewable Term Life Insurance - Why It's The Unpopular Choice
2010-01-16
There are dozens if not hundreds of options available when it comes to term life insurance policies. You might get a completely different term life insurance quote with one plan than with another, and different levels of coverage also; it's sometimes overwhelming, and it can be difficult to make a decision without all of the facts. However, one form of term life insurance is very unpopular with the vast majority of buyers--annually renewable term life insurance. It's important to understand the risks of this type of insurance if you're considering it, as it can be a good decision for some buyers, but tends to be a bad idea in most cases.
Annually renewable term life insurance operates exactly how its name indicates. You pay an insurance company a regular monthly premium, and your beneficiaries collect on your policy if you die within the term of the policy. But unlike most term life insurance policies, which regularly have terms set at 10, 20, or 30 years, annually renewable term life insurance policies can be renewed or canceled at the end of each year. There are advantages to having such a short term. For one, you're not tied down to anything, so if you're considering term life insurance as an option until you can afford a more investment oriented insurance type (such as whole or universal life insurance), this advantage can be significant. Also, your term life insurance rate will probably be fairly low at first, since there's little risk involved from the insurer's point of view.
However, over time that term life insurance rate will rise. Unlike traditional term life insurance policies, in which rates are guaranteed throughout the course of the term, you'll deal with ever-increasing premiums from year to year. Needless to say, this can be a significant disadvantage--in the long term, annually renewable term life insurance will cost you quite a bit more than a traditional policy. There are ways around paying more: some policies will give a guaranteed rate for the first five or ten years of renewal. However, after that time the rates will shoot up, and you'll be left in a tough situation.
Other types of term life insurance policies will offer better long term rates than annually renewable plans, so most consumers tend to go with some of the more logical policy types out there. Annually renewable policies have their place, but they're best used as short term solutions, not as end-all strategies when approaching life insurance. Understanding the limitations of annually renewable plans is very important when you're considering a new policy.
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There are dozens if not hundreds of options available when it comes to term life insurance policies. You might get a completely different term life insurance quote with one plan than with another, and different levels of coverage also; it's sometimes overwhelming, and it can be difficult to make a decision without all of the facts. However, one form of term life insurance is very unpopular with the vast majority of buyers--annually renewable term life insurance. It's important to understand the risks of this type of insurance if you're considering it, as it can be a good decision for some buyers, but tends to be a bad idea in most cases.
Annually renewable term life insurance operates exactly how its name indicates. You pay an insurance company a regular monthly premium, and your beneficiaries collect on your policy if you die within the term of the policy. But unlike most term life insurance policies, which regularly have terms set at 10, 20, or 30 years, annually renewable term life insurance policies can be renewed or canceled at the end of each year. There are advantages to having such a short term. For one, you're not tied down to anything, so if you're considering term life insurance as an option until you can afford a more investment oriented insurance type (such as whole or universal life insurance), this advantage can be significant. Also, your term life insurance rate will probably be fairly low at first, since there's little risk involved from the insurer's point of view.
However, over time that term life insurance rate will rise. Unlike traditional term life insurance policies, in which rates are guaranteed throughout the course of the term, you'll deal with ever-increasing premiums from year to year. Needless to say, this can be a significant disadvantage--in the long term, annually renewable term life insurance will cost you quite a bit more than a traditional policy. There are ways around paying more: some policies will give a guaranteed rate for the first five or ten years of renewal. However, after that time the rates will shoot up, and you'll be left in a tough situation.
Other types of term life insurance policies will offer better long term rates than annually renewable plans, so most consumers tend to go with some of the more logical policy types out there. Annually renewable policies have their place, but they're best used as short term solutions, not as end-all strategies when approaching life insurance. Understanding the limitations of annually renewable plans is very important when you're considering a new policy.
