Annual Renewable Term Insurance
Definition
Annual renewable term (ART) insurance is a type of term life insurance policy that provides coverage for one year, with the option to renew the policy every year without a new medical examination. The premium usually increases each year as the insured ages, reflecting the increased risk over time.
Examples
- Individual Coverage: A 30-year-old individual purchases an ART policy for $100,000. The initial premium is low but increases annually as the risk of death rises with age.
- Employer-Provided ART: Some employers offer ART insurance as part of their benefits package. Employees may opt for this coverage, benefiting from the annual renewal without additional health screenings.
Frequently Asked Questions
Q1: What happens if I don’t renew my ART insurance?
- If you do not renew your ART policy, your coverage will lapse at the end of the current term, leaving you without life insurance coverage.
Q2: How are premiums determined for ART insurance?
- Premiums for ART insurance increase annually based on the insured person’s age and the insurer’s perceived risk of death during the upcoming year.
Q3: Can ART insurance be converted to a permanent life insurance policy?
- Some ART policies include a conversion option allowing the policyholder to switch to a permanent life insurance policy without undergoing a medical exam.
Q4: Is ART insurance suitable for long-term coverage needs?
- ART insurance is generally ideal for short-term needs due to increasing premiums over time. For long-term coverage, other types of life insurance might be more cost-effective.
Q5: What is the primary benefit of ART insurance?
- The flexibility to renew annually without a new medical examination is the primary benefit, making it accessible to those who may develop health issues over time.
Related Terms
- Term Life Insurance: Insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term.
- Permanent Life Insurance: Life insurance that provides lifelong coverage and normally includes an investment component, such as whole life or universal life policies.
- Whole Life Insurance: A type of permanent life insurance that remains in force for the insured’s entire lifetime, provided premiums are paid on time.
- Universal Life Insurance: A type of permanent life insurance offering flexible premiums, adjustable coverage, and an investment savings element.
Online References
Suggested Books for Further Studies
- “The Life Insurance Handbook” by Louis S. Shuntich
- “The New Life Insurance Investment Advisor: Achieving Financial Security for You and your Family Through Today’s Insurance Products” by Ben G. Baldwin
- “The Tools & Techniques of Life Insurance Planning” by Stephan R. Leimberg & Tools & Techniques Editorial Board
Fundamentals of Annual Renewable Term Insurance: Insurance Basics Quiz
### Which aspect of ART insurance changes annually?
- [ ] The coverage amount
- [ ] The policyholder’s health status
- [x] The premium amount
- [ ] The insurance company
> **Explanation:** The premium amount changes annually in ART insurance, typically increasing as the insured person ages.
### What is a unique feature of ART insurance compared to other term life insurances?
- [ ] Lifetime stable premiums
- [x] Annual renewal without a new medical exam
- [ ] Equal premiums irrespective of age
- [ ] Fixed premium over the policy period
> **Explanation:** ART insurance allows the policy to be renewed each year without requiring a new medical examination.
### Who determines the increase in premiums for ART insurance?
- [x] The insurance company
- [ ] The policyholder
- [ ] A government body
- [ ] Industry regulators
> **Explanation:** The insurance company determines the increase in premiums, which reflect the increased risk associated with the insured's age.
### Under what condition can premiums remain constant in an ART policy?
- [ ] If the policyholder’s health improves
- [ ] If premiums are paid in advance
- [x] Premiums can’t remain constant in ART policies
- [ ] If the policy is converted to permanent insurance
> **Explanation:** Premiums in ART policies naturally increase annually; they cannot remain constant.
### How long does an ART insurance policy provide coverage for?
- [x] One year at a time
- [ ] Five years at a time
- [ ] Ten years at a time
- [ ] Twenty years at a time
> **Explanation:** ART insurance provides coverage for one year at a time with the opportunity to renew annually.
### What happens if an ART insurance policy is not renewed?
- [ ] It continues but with a lower benefit
- [ ] Coverage is provided but premiums are higher
- [x] The coverage lapses
- [ ] A new medical exam is required
> **Explanation:** If an ART insurance policy is not renewed, the coverage lapses, leaving the insured without life insurance.
### What is the main benefit of converting an ART insurance to a permanent policy?
- [ ] Constant premiums
- [ ] Higher coverage
- [x] No need for a new medical examination
- [ ] Additional death benefits
> **Explanation:** The primary benefit of converting ART insurance to a permanent policy is avoiding a new medical examination.
### Why might someone choose ART insurance over other life insurance options?
- [ ] To lock in lifetime premiums
- [x] For flexibility and short-term coverage needs
- [ ] To gain investment returns
- [ ] To get higher coverage limits
> **Explanation:** ART insurance is often chosen for its flexibility and suitability for short-term coverage needs.
### What must policyholders consider due to ART insurance’s annual premium increase?
- [ ] Policyholder’s health
- [ ] Coverage reduction
- [x] Overall affordability in the long term
- [ ] Need for investment components
> **Explanation:** Policyholders should consider the long-term affordability due to annual premium increases in ART insurance.
### Which type of policy is included in employee benefits?
- [ ] Universal life insurance
- [x] Annual Renewable Term Insurance
- [ ] Whole life insurance
- [ ] Variable life insurance
> **Explanation:** Some employers offer annual renewable term insurance as part of their employee benefits package.
Thank you for diving deeper into the intricacies of annual renewable term insurance and testing your knowledge with our focused quiz questions. Stay informed and well-prepared when choosing your life insurance policies!
