What is a Yearly Renewable Term
Yearly renewable term (YRT) life insurance is a type of term insurance that renews on an annual basis. It’s less popular than it used to be, primarily because the premiums associated with the policy increase during each renewal period (i.e., on a yearly basis).
Yearly renewable term 101
Yearly renewable term is a kind of term life insurance. That means that it only locks in the policy parameters, including the premium, for a specified term. Most term life insurance policies available today have a level term period of one to several decades, (e.g., 10-year term life insurance, 20-year term life insurance, etc.).
Another type of term life insurance used to be more common: yearly renewable term coverage. As its name suggests, this life insurance policy came with a term that had to be renewed annually. The renewal means the insurer can reevaluate the policy and increase premiums, but it doesn’t require the insured to go through new medical underwriting.
Most YRT policies lock in your ability to maintain the coverage for a set amount of time. You might buy YRT to stay in effect up to a certain age, for example, which would mean you could maintain the policy (paying increasing premiums annually) to that age without the need for a medical exam.
YRT insurance was popular because it was affordable when initially purchasing the policy. But over the years, it can become prohibitively expensive.
The changing cost of YRT
YRT life insurance starts affordable because of two things: limited policy features and your age when you initially buy the policy.
YRT insurance is cheaper than all types of permanent life insurance because it doesn’t include a cash value component and doesn’t last the insured’s lifetime. It’s also generally cheaper than level term life insurance because the level premium period only lasts for a year, so you only need to cover the cost of insurance, also known as the mortality cost, for a year at a time.
This type of life insurance also starts cheap for the same reason that it gets expensive: your age. It, like all other life insurance, gets priced according to the insured’s age at the time of purchasing or renewing the policy. Life insurance providers also consider other factors, like your health history and whether or not you smoke, when determining your premiums. Still, though, your age is one of the biggest things that impacts what you pay for coverage.
At the end of each yearly term, you won’t need to reapply for the policy. That means that if a medical condition cropped up in the last year, you won’t need to worry that it will disqualify you from coverage. But you will be subject to a reevaluation from your life insurance provider. Specifically, they will take the opportunity to increase your premiums.
Life insurance costs more the older you get. As a young person, you’re likely to have plenty of years ahead of you to pay your premiums to your life insurance provider, helping them to offset the risk of insuring you. As you age, though, their risk in covering you increases. To mitigate that, they charge higher premiums.
Because YRT policies get reevaluated each year, your premiums will almost definitely go up during each annual renewal period. Over time, maintaining YRT coverage might end up costing you more than if you had bought a level term life insurance policy. There is a maximum contractual premium that can be charged in any given year.