Annual Renewable Term Life
This is the easiest type of term insurance. It is very simple to understand for laymen like you and me. The period of the insurance is for one year. The dependants of the insured will be compensated in case the insured dies within that year. That is within 365 days of taking the insurance. Even if the insured died one day after the term that is the expiry of the term then there is no benefit, the premium of the policy depends on the probability of the insured dying within that term period plus a small profit for the insurance company. The chances of a person, any one who is fairly healthy, to die within a year is very low. It is so rare that the insurance company does not accept for one year insurance policy. So a policy that can be renewed each year is issued by the insurance company. This annual renewable term policy is available for persons in the age of 18 to 70. There is no cash investment or value to the premium paid unlike the permanent whole life insurance policy. But the insurance premiums are very low so that you can save and invest on your own.
Features of Annual renewable term life insurance
Annual renewable term life insurance is renewed each year. The premium for one year is paid by the insured. The main challenge is the medical test. Each year the insured should undergo a medical test before renewal. In case where the medical fitness of the insured is weak then the premium payable by the insured is raised. For example a person may have acquired a rare disease that is fatal. But the death can take place after the maturity of a year. So this person fails the medical test and now requires a new insurance policy or is required to pay a higher premium. The risk factor is not compensated in this case. So now companies have come up with this new idea popularly known as guaranteed reinsurability. So this program allows the annual renewable term life insurance holder to renew the insurance without undergoing the medical tests that is he/ she does not need proof of insurability.
Annual renewable term life insurance is a version of term insurance is very popular among bachelors and families with young nests. Also known as decreasing term insurance it is famous especially among people living within the limits of a budget and who have dependent children and elderly parents or dependants to look after. So for them who cannot afford a permanent plan but should cover themselves for risk against death this policy is suitable. Getting annual term insurance helps with protection of family and loved ones in event of death. No one anticipates death but in case of tragedies annual renewable term life insurance will come in handy. The reason people go in for term insurance is that they are affordable. Since the time period is short the risk covered by the insurance company is also very low. Hence the low premium for the risk covered. This is a temporary way to cover the risks of the family and is useful for people between jobs. The spending on insurance, the insurance bill is quite low.
Premium Of Annual Renewable Term Life Insurance
In annual renewable term life insurance the premiums are usually very low since initially it covers only one year in the life of a person. The premium is paid for a year but can be extended to a period up to a maximum of 30 years or in few cases up to the age of 95 years. The premium increases with each year after the insured reaches the age of 50. Each year when the policy is renewed the premium is higher than that of the previous year. The higher the age of the person they are more likely to die statistically speaking. So at one point of time they become unviable financially for a person to pay and sometime costs more than what a permanent policy will cost. Sometimes the renewal comes up only once in five or ten years. The chances of payout in case of annual renewable term life insurance are just one percent. In annual renewable term life insurance the premium payable is a little higher than for a year’s coverage, but the benefits for the premium paid are higher than single year’s coverage.
There next key factor is the policy to choose. There are different types of policies and way the premiums are calculated. Firstly there are premiums which are fixed and secondly there a renewal premiums. In case of fixed premiums they rise as the age of the insured rises. There is a premium table available with every insurer which gives the premium for the particular age. The premiums are within the amounts mentioned in the table. So this gives the chance to see how this policy will work out in the long term.
Examining how premiums are handled is often a key factor in the decision process. The renewal premiums on the other hand are based on current economic conditions of the country and the standards followed in the industry and your own health. They are usually unpredictable and vary every year and vary with each insurance company.
Conversion Options For Annual Renewable Term Life Insurance
A lot of insurance companies allow the option of converting the annual renewable term life insurance to a permanent life insurance policy. In case the insured wishes to convert it at the end of the maturity period he/she can do so. While exercising the convertibility option there is no additional cost. So when you have higher cash flows this convertibility option is a boon since at maturity of the whole life policy you get some investment back and will be a protection in later stages of life.
While choosing the insurance policy the individual must look into the future needs of the family and choose the best plan and not just see the price and make the decision. In annual renewable term life insurance plans extra options such benefits in case of accidental death and waiver of premium for disabled is available on payment of higher premiums.
Annual Renewable Term Life Insurance Is Best For
Who are the people actually interested in the annual renewable term life insurance policies? Firstly in case of a business person who has just started his/her own business with a capital loan. The loan should be repaid quickly within the period of one or two years and repayment should be done in case of death. So an annual renewable term life insurance is the best option available to him/her. It takes case of repayment in case of death of the person. Secondly it is the case where in the insured has developed a fatal illness and is likely to die within a year or two. So taking other types of insurance policies are not possible and when the term expires he/she needs to be insured to protect their family/ loved ones. So the annual renewable term life insurance should be continued even though the premium is very high. A person with very less expectancy of life does not care about the increase of premiums later on in life. So they would go for annual renewable term life insurance but as age increase the premium amounts are thrice of what it was in the beginning of the annual renewable term life insurance.