Yearly Renewable Term (YRT)
A yearly renewable term is a type of term life insurance policy, the coverage of which extends for a year. Other names for this type of insurance are increasing premium term insurance or annual renewal term assurance. A “renewable policy” contemplates continued validity for an additional period or periods until reaching a specific age, even if the client's health or other special factors may result in refusal to apply for a new life insurance policy.
Yearly Renewable Term explained
By calculating and applying certain risk variables, actuaries determine the premium to be charged to the insured. The older the insured, the higher the premium on the policy can be set. The yearly renewable term is suitable for young people due to the low cost of insurance and the flexibility of the insurance premium. The yearly renewable term allows younger, healthier people to pay the lowest possible premium appropriate to their current age and physical condition, and to be able to maintain coverage year after year.
The premium specified in a yearly renewable term is calculated for one year and applies to the current year. Next year, the insured will pay a new annual premium, however, the rate will be already higher, since this person has become a year older. In another year, the premium will increase again, as the client will be two years older. An annual increase in the insurance premium is necessary for coverage of increased risk associated with the age of the insured persons.
Buying a life insurance policy with a simultaneous term and a fixed premium rate, for example, for 10 or even 20 years, is the most profitable option, while the yearly renewable terms are the best short-term solution. However, if the insured person dies within one year, a death benefit payment may be made under this policy to the named beneficiary.
Reasons for buying Yearly Renewable Terms
The assessment of the premium by the yearly renewable term refers mainly to the age of the insured. Insurance premiums tend to increase with the age of the client, the younger the person, the lower his insurance premium. This is due to the fact that the older the insured becomes, the more risks arise. Many yearly renewable terms provide for a schedule of insurance payments, that is, a “schedule of premiums”. This is a kind of table, indicating the maximum amount that the client needs to pay from year to year. Insurance premiums may increase every year, but the death benefit remains the same.
A clear disadvantage of yearly renewable terms is that by renewing the policy for many years and performing this action from year to year, the client can significantly overpay. If the client renews the policy from year to year for a long time, then in the end he can pay more insurance premiums than in the case of buying a long-term or permanent life insurance policy.
But sometimes conversion is still possible for a yearly renewable term, that is, the policyholder can change its type to a permanent one without additional evidence of insurability. For example, if an insurer purchases an annual revolving life policy but later realizes that their coverage needs are higher, the insurer may allow that customer to re-subscribe to life insurance without a second medical examination. The owner of the insurance policy can set the period of time during which he is insured. During this period of time, the policy can be extended without the need for a medical examination.
