Why You Should Choose one Over Other?

[Shine]

Premium Term Life Insurance and Yearly Renewable Term Life Insurance. Why should I choose one over the other?

[jIM_Ohio]

sorry, I don't know what the differences are

[cschin4]

I don't know either. I bought a 20 yr term. Same yearly payment over the term for a defined benefit. Is there a changing premium or some element of cashing out(whole life) with it?

[Shine]

sorry, I don't know what the differences are

What is the advantage of level term life insurance vs. yearly renewable term life insurance?

[jefffou]

What is the advantage of level term life insurance vs. yearly renewable term life insurance?

My guess is that the level term will be cheaper because of less administration costs on the insurance company.

For example, if you take a ten-year level term, you have essentially pre-purchased ten annually renewable term insurance policies. Each annual cost is added and then smoothed over the ten-year period to make them "level".

By purchaseing a 10-year level term policy, you have relieved some of the administration costs on the insurance company, you have committed to buy ten years in bulk and therefore, costs should be cheaper.

I don't know this to be true, but I would bet that it is.

[jpg7n16]

In the initial years, yearly renewable will be cheaper - but from about midway-end, the level term will be cheaper.

The yearly renewable updates the premium each and every year. So while it starts lower, it ends higher.

Example I'm making up: (just to show a pattern, not to show actual current rates)
5yr Level Term: $250, $250, $250, $250, $250
Yearly Renewable: $230 , $240, $250, $260, $270

Now when comparing a 30-year level term, to annual renewable, the difference will be exaggerated on both ends. The ART would be much cheaper today, but by the end would have a much higher premium.

The best use for ART - you're just starting off in life, entry level job, higher debt balances. ie. You need all the cash you can get. And as you get older, advance in your job, and pay down debt, you can then better afford the higher premiums. At that point, you could either continue with the ART, or switch to a term/whole life policy depending on why you need life insurance.

The best use for the level term - your personal needs for life insurance are not lifelong (lifelong need examples: estate liquidity, wealth transfer, leave a legacy, permanent insurance need, business buyout arrangements, etc) In this case, you know you need life insurance... say until the kids move out on their own - or until the home is paid off - or until retirement... but are choosing to self-insure beyond that point. You will manage your death expenses and income replacement through your own savings.

Example: you are 32, married with 2 young children, in a stable job, are making good savings progress and just purchased your first home. You need life insurance at least while the children are in your care (somewhere 18-25ish), and possibly to pay off the mortgage/replace your income if something happens to you. But you have determined that you don't currently have a lifelong need for insurance. In this case, you should consider 20 or 30 yr level term (as opposed to a whole life policy) which would cover you until the children are out on their own, or until just before retirement/home is paid off, respectively. The level term aspect might be better because your income is more stable, and you can work it into your budget easier when you know the premium will remain the same every year.


In summary - annual renewable = cheaper now, more expensive later.

Hope this helps!