Annual Renewable Term Life (ART): Is it Worth it? | Finder Canada

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Annual renewable term life insurance

With annual renewable term (ART) life insurance you can purchase a new policy every year, but your premiums will go up.

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Typically, term life insurance offers coverage for a set number of years. With annual renewable term (ART), you’re basically buying a new policy each year — but it can get very expensive.

What is annual renewable term life insurance?

Annual renewable term life insurance is a one-year policy that your provider guarantees to renew each year for a set number of years – known as the “insurability period.” During that period, you’ll be able to renew your coverage without reapplying or taking another medical exam. However, the cost of your premiums will increase every year.

How does annual renewable term life insurance work?

ART policies are designed to cover short-term needs. They work just like traditional term policies in that if you die during the term, your beneficiaries receive a death benefit. But the major difference is how the premiums are calculated. Since you’re essentially taking out a new life insurance policy each year, the rates are low at first, and increase every year you renew your coverage.

The reason for that increase is because your insurance company will reassess your risk of death each time they renew your policy – and your odds of dying increase as you age. So while this type of life insurance will likely be cheaper than a typical term policy for the first few years, it will get more expensive later on. If you plan on having life insurance for 10 to 20 years, than a you can lock in a lower rate with a typical term policy compared to an ART policy, which is better for short term coverage.

Can I add riders to my policy?

Yes. The options vary between providers, but you may be able to customize your coverage with these common riders:

  • Disability waiver of premium rider. Waives your premiums so you don’t have to pay into your policy if you become fully disabled and can’t work.
  • Accelerated death benefit rider. If you’re diagnosed with a terminal illness, this rider pays out a portion of the death benefit before you die.
  • Automatic benefit increase rider. Boosts your coverage by a certain percentage each year.

Pros and cons of annual renewable term life insurance

Pros

  • Flexible life insurance. ART is ideal for those who need to bridge gaps in their coverage, or only need life insurance for a short period of time.
  • Easy renewals. If you choose to renew your policy within the insurability period, you won’t need to take another medical exam.
  • Customizable coverage. Like traditional term policies, most insurers allow you to add common riders to your coverage.
  • Ideal for past smokers. If you’ve quit smoking, you could pay lower premiums with ART until you’re officially classified as a non-smoker in your insurer’s eyes — which is usually 1 to 2 years.

Cons

  • Rates increase over time. With ART, the premiums increase each year to reflect your age.
  • Age limitations. You can renew your policy each year up to a certain age, which varies between providers. After that, you’ll need to look into other types of life insurance.
  • Strict about terminal illness. If you develop a terminal illness during your term, you might not be able to renew your policy the following year — leaving you uninsured.

Is ART right for me?

ART is best for people who only need life insurance for a short, set period of time.

When it makes sense

These are a few situations where it might make sense to opt for annual renewable term life insurance:

  • You want to cover a short-term debt or expense. Maybe you only have a year or so left on a loan. In this case, annual renewable term life insurance could offer peace of mind that your loved ones won’t be stuck with the debt if you die.
  • You need life insurance as part of a divorce decree. If you’re ordered to buy life insurance by the court, an ART policy could meet that requirement.
  • You’re temporarily doing a dangerous job, like mining or logging. This policy could stay in force for as long as you’re walking into a risky workplace each day.
  • You can’t afford traditional term life insurance. If you can’t squeeze a regular term life policy into your budget right now, you might consider buying an ART policy and cancelling it when your financial situation changes.
  • You’re planning to quit smoking. As a smoker, you won’t be eligible for most providers’ preferred rates, which means you’ll automatically pay more for life insurance. You could purchase an ART policy while you’re in the process of quitting, and potentially score lower premiums in the meantime. When you’ve been tobacco-free for 1 to 2 years, you may be able to access those preferred rates and buy a long-term policy.
  • You’ll have life insurance soon with a new employer. Starting a new job? If you’ll be enrolling in group life insurance or purchasing supplementary insurance through your employer, ART could bridge the gap in the meantime.

When you should explore other options

On the other hand, you might want to avoid annual renewable term life insurance if:

  • You’re older, or have health issues. With ART, your premiums will rise as you age, and may become unaffordable. If you go with traditional term life insurance, your premiums won’t change for the life of the policy.
  • You’re over the maximum age that you can renew your policy. You can renew your policy each year up to a certain age, and that age varies by provider. After that, you’ll need to explore other life insurance options.
  • You need life insurance for long-term needs. If you’re buying life insurance to cover long-term debts or expenses, it will be much cheaper in the long run to buy a term or permanent policy.
  • You’re on a budget. Since the premiums rise year-over-year, ART policies are not the most affordable option. If you’re on a budget, you might be better off buying a regular term life policy with level premiums. That way, you know exactly how much you’ll pay each month or year for coverage.

Insurability period, explained

When you apply for an annual renewable term life policy, you’ll lock in an “insurability period” which lasts anytime between 5 and 30 years. This means you can renew your policy annually with no proof of insurability (i.e. no questions asked).

How to get annual renewable term life insurance

The process is much the same as applying for any other type of life insurance:

  1. Research life insurance carriers, and compare policy features and riders.
  2. Get quotes from a handful of your top providers.
  3. Choose the best policy and select an insurability period.
  4. Apply for coverage.
  5. Pay your annual premium.
  6. Each year, decide whether or not you want to renew your ART policy.

Cost of annual renewable term life insurance

When calculating your premium, your insurer will assess the risk of you dying that year. The longer you have the policy, the higher those chances are — which is why ART policies can get very expensive as you age.

Your insurer will likely give you a “schedule of premiums” chart. This maps out the maximum possible premium you can be charged each year, so you can avoid any major surprises. They’ll then tell you the exact amount you’ll need to pay each year at renewal time.

If you’re young, healthy and only need life insurance for a short period, annual renewable term life may be a cost-effective option. But otherwise, you’ll likely end up paying more in premiums than you would have if you purchased a traditional term life policy.

Compare term life insurance companies

If you’ve decided that a term life insurance policy is the best option for your needs, check out the providers in the table below. You can click the “Compare” check box beneath any providers you’re interested in to compare their features side by side.

Name Product Types of Insurance Coverage Range Issue Ages Medical Exam Required Province Availability
Manulife Life Insurance
Term Life Insurance
$100,000 - $1,000,000
18 - 70 years old
No
Ontario, Alberta, Manitoba
Manulife's CoverMe Term life insurance is simple and straightforward coverage that suits your lifestyle and budget. Get a free quote through PolicyAdvisor.
Canada Protection Plan Life Insurance
Term Life Insurance
$50,000-$1,000,000
18 - 70 years old
No
Ontario, Alberta, Manitoba
Canada Protection Plan's Preferred Term life insurance is suitable for those in good health. Get a free quote through PolicyAdvisor.
BMO Life Insurance
Term Life Insurance
$100,000 - $5,000,000
18 - 75 years old
No
Ontario, Alberta, Manitoba
BMO Term life insurance provides you with coverage for 10, 15, 20, 25 or 30 years. Get a free quote through PolicyAdvisor.
Assumption Life Insurance
Term Life Insurance
$50,000-$4,000,000
18 - 75 years old
No
Ontario, Alberta, Manitoba
Choose from five different term life insurance plans with Assumption Life. Get a free quote through PolicyAdvisor.
 Life Insurance Through PolicyAdvisor
Whole Life Insurance, Term Life Insurance, Permanent, Universal
$25,000 - $5,000,000
18 - 72 years old
No
Alberta, Manitoba, Ontario
Policy Advisor is a digital life insurance brokerage that has partnerships with 20 insurers in Canada.
Sun Life Go Simplified Term Life Insurance
Term Life Insurance
$50,000-$100,000
18 - 69 years old
No
All of Canada
Sun Life Go Simplified Term Life Insurance covers you for 10 years, during which time your premiums are guaranteed not to rise. Apply for up to $100,000 in coverage.
Sun Life Go Term Life Insurance
Term Life Insurance
$100,000 - $1,000,000
18 - 69 years old
No
All of Canada
Sun Life Go Term Life Insurance is a standard term life insurance option that guarantees your premiums in the first 10 or 20 years of your policy.
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Compare up to 4 providers

Alternatives to annual renewable term policies

If ART doesn’t meet your needs, these are your other term life options:

  • Level term life insurance. The most popular term policy, level term offers protection for a set period of time, like 5, 10, 15, 20, 25 or 30 years. It’s predictable: You’ll pay the same amount of money each month until the term expires, and if you die, your beneficiaries will receive a guaranteed death benefit.
  • Decreasing term life insurance. Like level term, decreasing term life insurance has stable premiums, but the death benefit gradually decreases — either monthly or annually — over the life of the policy. The terms usually range between one and 30 years, and most people buy this coverage when they know their need for life insurance will decrease as time goes on.
  • Laddering term policies. Also known as “layering,” this strategy involves buying multiple term policies of different lengths to match your financial obligations. For example, if you have young children and a 30-year mortgage, you might buy a 20-year term life policy to carry your kids through college, and a 30-year policy to cover your mortgage. That way, if you die, your family won’t have to carry those debts and expenses.

Bottom line

Think of annual renewable term life insurance as a one-year contract. You can renew your policy each year until the insurability period is up. But the longer you renew, the more costly it becomes. Unless you have short-term needs, it’s worth comparing all of your life insurance options.

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