Annual Guaranteed Renewable Term Insurance Vs. Level Term Life
Term life insurance might be your best option if you can't afford the high cost of permanent life insurance. However, there are two types of term life insurance. Term insurance may be purchased on a one-year, renewable, basis, or it may be purchased on a level-term basis. Make sure you understand the difference between the two options before you pick up a policy.
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Annual Renewable Term
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Annual Renewable Term, called ART, is a type of life insurance that provides basic death benefit coverage for you and your family. Premiums are paid in exchange for a death benefit. The death benefit remains level for as long as you keep the policy. But, the premiums increase every year because the policy renews every year. Only enough premium to support the death benefit for one year is collected, which is why the insurer must charge more every year to compensate for your age.
Level Term Life
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Level term life insurance is life insurance that levels out the premiums and provides death benefit coverage that is guaranteed (similar to ART). Premiums are collected in excess of the minimum amount needed to support the death benefit in any given year. These premiums are invested to hold down the future rising cost of insurance, while providing a level premium payment for the term of the policy.
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Benefit
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The benefit of an ART policy is that your time commitment in the policy is short -- just one year. Premiums might be lower than level term premiums depending on your age. The benefit of level term life is that it provides a consistent premium payment for a set number of years. With annual renewable term, the premiums can become very expensive over time, since none of the premium is invested to offset future insurance costs.
Consideration
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When deciding on which type of insurance to buy, your financial goals are primary. ART policies are ideal when you need very short-term insurance, and you don't want to commit to a multi-year policy. Level term life is ideal when you need longer-term insurance, and you want the stability of level premiums for the entire time you hold the policy.
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