The annual renewable term life insurance policy probably has more aliases than any other life insurance policy.
It is also known as the yearly renewable term life insurance policy as well as the increasing premium term life insurance policy.
That does not mean that the annual renewable term life insurance policy is a bad policy?
On the contrary if it is properly understood and if it is used for the purpose it was intended this policy can fulfill a needs for its owners.
It can fulfill many a need in truth. The need usually short term needs as the premiums increase each year, nobody wants to pay more.
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Annual Renewable Term Life Insurance
When you buy an annual renewable term life insurance policy you are actually buying a one year term insurance policy with the option of renewing it every year without having to qualify for it over again each year.
The thing that bothers most people about the annual renewable term life insurance policy is that the premiums increase each year.
What you need to understand is that you are paying the premium for a one year term policy with a rate that is the correct rate for that particular age…
All life insurance risks are calculated in the same manner but to appreciate the fact that some premiums remain level and others are constantly on the rise like the annual renewable term life policy we need to look at the premium structure of some other policies.
- Compare With 5 Year Term And 10 Year Term Policies
If we were to compare the annual renewable term life insurance policy with the 5 year term life insurance policy and the 10 year term life insurance policy we would notice that the premiums for the latter policies remain level throughout their lifetime. The face amounts also remain level. What is occurring here is that these policies have the risk spread out over a 5 or 10 year period…
The premium that is therefore paid in the first year, for example, is more than is needed to take care of the risk involved. They are loaded up front. The premiums the policy owner pays in year 5 and year 10 respectively are lower than would be needed to take care of the life insurance risk in those particular years. This is because the difference has already been paid in the previous years. - Compared With The Whole Life Insurance Policy
If we were to compare the annual renewable term policy with the whole life insurance policy we would find that the principle is similar but for one thing. The premiums for the whole life policy is considerable more than those of the aforementioned policies. After deducting the costs to issue the policy, for example administrative costs and the agents commission the rest is applied to cash values.
The whole life insurance policy is heavily loaded up front. The only advantage to this is that over a period of years this cash value together with added dividends can amount to a considerable amount of money.
We can therefore conclude that the premiums charged for the annual renewable term life insurance policy is a fair premium. The face amount of this policy remains level for as long as you own it.