Yearly Renewable Term (YRT)

A yearly renewable term is a one-year term life insurance policy. This type of policy gives policyholders a quote for the year the coverage is bought. When someone buys a yearly renewable term insurance policy, the premium quoted is for a one-year term, starting in the current year. At the same time next year, the insured will pay another annual premium for a person in their same situation, but one year older. In the following year, the premium increases again as it will be for the same person, two years older. Premiums increase annually in order to cover increased risk with age. This type of insurance is also referred to as increasing premium term insurance or annual renewal term assurance.

Actuaries are in charge of figuring out what premium will be charged for a yearly renewable term, based on different risk variables. Using a specific formula for these variables, actuaries can predict at what age a policyholder will likely die. As the policyholder grows older, premiums to the policy can be added. These polices tend to be attractive to young insurance seekers who want to start out with a low cost, flexible premium. It also pays a death benefit to any named beneficiary if the policy holder passes away within the one-year term.

The primary drawback of yearly renewable term life insurance is that if a policyholder renews for many years, they could end up paying more in premiums than if they'd bought a level term life or permanent life insurance policy. If someone buys a yearly renewable term life policy and later figures out their coverage needs are longer, the insurance company may let a policyholder convert the policy to whole life insurance without taking another medical exam.

Yearly renewable term life insurance enables a policyholder to lock in a period of “insurability,” which is the length of time someone can renew the policy annually without reapplying or taking another medical exam. The policy is renewable up to a certain age. The maximum age can vary by state. For example, New York law sets the age limit at 80.

The premiums generally start out low and will rise with each passing year, based on the policyholder's new age and their increased statistical chance of dying. The policy’s face amount — the benefit paid if someone dies — stays the same. A yearly renewable term life policy policy will include a “schedule of premiums” chart that shows the maximum possible premium for each year. An insurer will inform the insured of the exact amount each year at renewal time.