Yearly Renewable Term (YRT) is a one-year, temporary life insurance policy that automatically continues each year at the same death benefit. Designed for those seeking short-term insurance coverage, YRT offers flexible premiums, which increase annually in line with the insured’s age, while providing consistent coverage.
Key Takeaways
- A Yearly Renewable Term is a one-year term life insurance policy.
- This policy can be extended into future years without additional underwriting, though the premium will increase each year.
- Premiums initially quoted cover one year of coverage based on the insured’s current age.
- Long-term renewals may result in higher total premiums compared to level term or permanent life insurance policies.
- YRT policies can often be converted to other types of insurance as needs evolve.
Understanding Yearly Renewable Terms (YRT)
Yearly Renewable Term life insurance provides one year of coverage, paying a tax-free death benefit to the policy’s beneficiaries if the insured passes away within that 12-month period. Each year, the YRT renews with the same death benefit but requires a higher premium as it adjusts for the insured’s advancing age. Known as increasing premium term insurance or annual renewal term insurance, YRT accommodates changing financial situations.
Insurance companies employ actuaries to determine the premium for a renewable term policy using variables such as age, health, and additional risk factors. Renewable term policies allow for annual renewal without additional medical underwriting over a specified period, functioning essentially as a series of one-year term policies, recalculated based on the insured’s current age each year.
Yearly Renewable Term Suitability
YRT policies are particularly appealing to young individuals seeking flexible and low-cost premiums that fulfil immediate needs. They also cater to short-term demands, including:
- Awaiting insurance coverage during job transitions
- Recently quitting smoking
- Managing short-term medical conditions
- Other scenarios demanding one to two years of coverage
The main downside of YRT is that if renewed for many years, total premiums paid may surpass those of a level term or permanent life insurance plan. However, many insurers allow policyholders to convert YRT to whole life insurance without needing a new medical exam.
Why Choose a Yearly Renewable Term?
Yearly Renewable Term life insurance lets policyholders lock in a timeframe during which they remain insurable, renewable without additional medical exams. Renewability rules differ from state to state and typically adhere until a certain age, like 80 in New York due to cost-efficiency considerations.
Premiums are priced heavily based on age, making YRT attractive to younger adults. As an individual ages, premiums rise due to increasing risk, however, a “schedule of premiums” outlines the highest premium charge each year when policies renew, maintaining a fixed death benefit.
Why YRTs Appeal for Short-Term Insurance Needs
Flexible and low-cost coverage YRTs are ideal for those needing short-term insurance. During this timeframe, the policy remains renewable without medical re-evaluations.
Main Drawback of YRT
Extended renewals entail rising total premiums beyond what would have been paid had a level term or permanent life insurance policy been initially chosen. However, converting YRT to a level or whole-life policy without additional exams or underwriting remains an available option within many plans.
YRT Premiums vs. Other Types of Insurance
YRT premiums rise annually based on the insured’s age whereas other term policies like a 10-year renewable term have steady premiums throughout their term, recalculating upon renewal for a new term. Whole life policies traditionally charge fixed premiums throughout the policy’s life.
The Bottom Line
Yearly Renewable Term insurance suits young adults or those needing temporary insurance to mitigate short-term financial risks. Over time, expect higher premiums as age increases. Consult a life insurance professional to decide if a YRT policy aligns with your needs, or if other, more consistent premium plans like level term or whole life insurance fit better.
Related Terms: term life insurance, whole life insurance, increasing premium insurance, death benefit, underwriting.
References
- Pretected.com. “What Is Yearly Renewable Term?”
- Progressive. “Can You Switch From Term to Whole Life Insurance?”
- New York State. “Life Insurance”.
- Fidelity Life. “10 Year Term Life Insurance”.
