Annual Renewable Term Insurance

• Annual renewable term-life insurance is life insurance that renews every year. The insurance company collects just enough life insurance premiums to pay for the cost of insurance for one year. Because the premium collected only covers the cost of insurance for one year, the insurer must raise the premium every year to reflect the increased cost to provide the death benefit.
  
  

Level Term-Life Insurance

• Level term-life insurance is life insurance that inflates the premium over the pure cost of insurance and levels the premium out over a number of years. The insurer then invests this excess premium to help pay future costs of insurance. Policies may be purchased for terms of five years up to 30 years. The longer the policy term, the more expensive the term premium.
  
  

Effects

• Annual renewable term-life insurance is the most expensive form of life insurance if held to the maximum insurance age of 80 or 85, depending on the state you happen to live in. Annual renewable policies are designed to be held for short periods of time when insurance needs are low. Level term policies are designed for predictability: You hold the policy for a set number of years, and your premium doesn't change. Even though the cost of insurance is rising, the insurer accounts for this through its excess premium collection.
  
  

Consideration

• When you're looking for a policy that insures you for less than five years, an annual renewable policy is likely be the cheapest policy. If you're insuring your life for more than this, then consider a level term policy.