What Is Annual Renewable Term (ART) Insurance?

Annual renewable term insurance (ART) is a form of term life insurance which offers a guarantee of future insurability for a set number of years. During the stated period, the policyholder will be able to renew each year without reapplying or taking another medical exam to reaffirm eligibility. The design of an ART policy is to cover short-term insurance needs. These policies are underwritten using the same mortality tables as other life insurance products. Also, they're the least expensive form of life insurance to buy.

Key Takeaways

  • ART is a life insurance product meant for the short-term.
  • The policy can be renewed annually without the need to reapply or take another medical exam.
  • Premium wise, they are generally the least expensive life insurance policy.

In an ART policy, the monthly or yearly fees known as premiums continue on a one-year contract basis. They may increase on the renewal of the insurance contract. As the insured ages, the premium will increase. The policy pays a death benefit which remains the same with the contract's extension.

As with other types of insurance, ART policyholders designate at least one beneficiary. Unless the insured states explicitly otherwise, the recipient will remain the same throughout the terms.

Comparing ART Policies vs. Level Term Policies

Annual renewable term insurance is a less common type of term life than level term insurance. Level term coverage has a premium rate which remains the same for a specified number of years, usually between 10 and 30 years. With both term insurances, the death benefit does not rise in value as it would with universal life or whole life policies.

The primary difference between ART and level term are in the calculation of premiums due. ART premium payments increase each year, and the level term premium does not. ART insurance policies determine the premium based on the risk that a person will die in the current year, a probability that tends to increase the longer someone has the policy. Also, level policies may have a term reaching up to 30 years, while ART policies have a limit of one year.

Most insurance providers will allow a term-life policyholder to convert their coverage to a universal or whole life policy. Buyers should also understand that a term life product is not suited for long-term estate planning.

Real World Example

Annual renewable term insurance is a short-term life insurance product and may not be best suited for most situations. As an example, imagine a 42-year old father of three children who recently lost his job as a marketing director.

Each state has a set maximum age for ART policies. New York’s limit is 80 years old.

As a result of the change in his employment, he no longer has access to his former company's group life insurance policy. He might be a good candidate to buy annual renewable term life because he needs temporary coverage for his family's protection and anticipates purchasing group life insurance through a future employer soon.

What are ART policies' advantages?

Designed to cover short-term insurance needs, ART policies are the least expensive form of life insurance to buy. Someone who is temporarily out of work, who anticipates purchasing group life insurance through a future employer soon, might be a good candidate.

Why might term level insurance be a better option over ART?

Level term insurance is meant for the long term. Their premiums don't increase annually while ART premium payments do. Term insurance policies determine the premium based on the risk that a person will die over a term of many years, while an ART policy calculates the risk the holder will die in the current year. Level policies may have a term reaching up to 30 years, while ART policies have a limit of one year.