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What is Annual Renewable Term life insurance (ART)?

by Mark Cluett
10 min read

In most of our articles, when we mention term life insurance, we are referring to level term life insurance. What this means is the premium rate is locked in for the length of your coverage term. For example, let’s say you applied and were approved for a 20-year term life insurance policy, with a monthly premium of $30. That $30 is what you pay every month for 20 years (or 240 months). 

Some applicants shop and compare for quotes to ensure they can lock in the lowest monthly premium for the longest term possible given their age, health, and smoking status. This ensures a stable fixed cost and the peace-of-mind knowing they are covered for their desired length of time: Typically, 10, 20, 30 years or to age 65 or 100, depending on their provider.

However, there is another term insurance which is not mentioned quite as much, that works a little differently and offers insurance seekers added flexibility and options with their coverage. Annual renewable term life insurance, while not the most popular or well-known product, has some features that set it apart from level term insurance and make it a useful option for specific financial situations.

KEY TAKEAWAYS

  • Annual renewable term (ART) policies give you the option to purchase life insurance coverage yearly
  • You are automatically eligible to renew your coverage at the end of each year. Premiums can get expensive if you continue with this option
  • Useful option for those with short term coverage needs (job change, soon-expiring debt)
  • A term life policy may better suit those with coverage needs beyond a few years

What is Annual Renewable Term life insurance?

Annual Renewable Term (ART) life insurance is a short term life insurance policy which locks in your premiums for one year and can be optionally renewed at the end of each year. 

The insurance company guarantees to renew the policy yearly for a set number of years. 

The premium rate is guaranteed but not level: it increases every year. While, yes, the price increases, you are still guaranteed your insurability every year you renew your term. The premium rates start low at the beginning of the policy but increases every year as the age increases, given the rise in mortality risk of the insured person.

Annual renewable term life insurance caters to individuals seeking temporary life insurance coverage at a low cost.

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How does Annual Renewable Term life insurance work?

Just like any other form of life insurance, the annual renewable term life insurance offers financial protection to your dependents, in the event of your passing away, during the term of the policy.

To obtain ART, you have to first establish your insurability with a medical questionnaire or further medical underwriting through a medical exam and/or blood work.

Once your insurability is established, you choose your death benefit amount, and find out what your monthly (or yearly if you choose) premium is. You now have life insurance for the year, and can renew each year until you feel you no longer need the coverage or want to look into other options such as term, whole, or universal life insurance.

The first year’s premiums are typically much lower than what one would pay in a longer term life insurance policy, but keep in mind they do increase every year. While the increase may appear minimal in the early years of the coverage, they will change substantially once you hit higher ages.

Also keep in mind that in most cases annual renewable term life insurance is not a long-term solution (more on this below). If you continue to renew your coverage beyond the initial first few years, you may quickly approach the point where a 10 or 20 year term life insurance policy would have a lower premium than what you currently pay. Unfortunately, you’ll have no time machine to go back and choose the least-expensive option at this point.

How much does Annual Renewable Term life insurance cost?

Below are the annual premiums a healthy, non-smoker at age 40 would qualify for with both ART coverage and 10-year term life insurance for $100,000. In this case, the applicant would save hundreds of dollars over the 10 year period by locking in a rate for pure term life insurance; there are no cost savings here through ART coverage.

Premiums for $100,000 Coverage, Non-Smoker, Good Health, 10-Year Term, Age 40-49
AgeMaleFemale
ARTTerm Life InsuranceARTTerm Life Insurance
40$129$121$122$96
41$129$121$122$96
42$129$121$122$96
43$143$121$125$96
44$163$121$130$96
45$177$121$137$96
46$194$121$146$96
47$213$121$158$96
48$233$121$171$96
49$257$121$186$96
Total$1,766$1,210$1,418$961

This example for the same circumstances at age 50 are a little different. While there is slight savings in the early years with ART, the annual renewable premiums are substantially higher in the later years. After 10 years, one who chose term life insurance would save about $800 (male: $833, female: $793).

Premiums for $100,000 Coverage, Non-Smoker, Good Health, 10-Year Term, Age 50-59
AgeMaleFemale
ARTTerm Life InsuranceARTTerm Life Insurance
50$205$226$157$165
51$205$226$157$165
52$205$226$157$165
53$230$226$179$165
54$268$226$213$165
55$299$226$240$165
56$339$226$272$165
57$386$226$310$165
58$442$226$354$165
59$511$226$407$165
Total$3,090$2,257$2,445$1,652

The savings are even more pronounced in one’s sixties. Below are the premiums for the same $100,000 policy for a 60-year-old non-smoker. A male applicant could save over $3,300, and a female applicant would save over $2,500, at the end of the term as opposed to continually renewing their Annual Renewable Term coverage.

Premiums for $100,000 Coverage, Non-Smoker, Good Health, 10-Year Term, Age 60-69
AgeMaleFemale
ARTTerm Life InsuranceARTTerm Life Insurance
60$497$550$365$405
61$497$550$365$405
62$497$550$365$405
63$594$550$438$405
64$739$550$548$405
65$863$550$642$405
66$1,008$550$753$405
67$1,179$550$886$405
68$1,382$550$1,043$405
69$1,622$550$1,231$405
Total$8,878$5,497$6,636$4,050

Why would someone choose Annual Renewable Term life insurance?

There are several situations where an annual renewable term life insurance policy makes sense. 

Short term debt obligations: Those carrying a temporary debt can find annual renewable term policies useful. If you are carrying a mortgage debt or car loan, but know you will be selling that asset to pay off the debt in the near future, an annual renewable policy can be a cost effective way to protect yourself in this period.

For those that rely solely on workplace benefits for their life insurance coverage needs, ART policies can offer a temporary solution when one is between jobs or find themselves temporarily unemployed.

Another ideal use case for ART coverage is for those who need insurance immediately, but intend to improve their health to the point where it would lower their premium for another form of insurance.

Some other uses for ART coverage include:

  • Business owners looking to cover a short-term loan
  • New parents making sure they are covered while they weigh all of their insurance options.
  • Smokers who can take the time afforded to them through ART coverage to quit smoking permanently and dramatically lower their future insurance premiums.
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What are the similarities between ART and term life insurance?

As mentioned, there are several ways an annual renewable term life insurance policy is similar to level term life insurance:

  • Regardless of length, both types of policy are renewable at the end of the term
  • Similarly, premiums are guaranteed for the term
  • Both offer temporary life insurance protection
  • Pricing for both reflects cost of pure life insurance
  • There is no access to any cash value or investment accounts

What are the differences between ART and term life insurance?

Despite both being temporary forms of life insurance, annual renewable term life insurance does have some key differences with traditional term life insurance.

Term Life InsuranceAnnual Renewable Term
Renewed after initial term, generally of 10, 20, 30 yearsRenewed annually 
Premiums are fixed for the termPremiums increase every year
Covers wide range of usesCovers short-term and temporary use-cases

How do you buy annual renewable term life insurance?

Not all Canadian life insurance providers offer ART policies. Companies like Empire Life have options for annual renewable term life insurance with the additional option to convert that coverage to a 20-year term life insurance policy, should you decide that is the right option for you down the road.

Regardless of whether you choose a term life policy or think an annual renewable term is what your coverage needs call for, our licensed brokers have decades of experience helping Canadian insurance seekers find the right coverage at the right price for their uniquire coverage needs. 

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Call us at 1-888-601-9980 or book time with our licensed experts.

The information above is a brief representative summary for indicative purposes only. It does not include all terms, conditions, limitations, exclusions, termination and other provisions of the policies described, some of which may be material to the policy selection. Please refer to the actual policy documents for complete details. In case of any discrepancy, the language in the actual policy documents will prevail.

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