YRT, yearly renewable term life insurance, has been around for a long time. Really the original term insurance, it has a rate that is guaranteed. Unfortunately it is guaranteed to go up substantially every year.

YRT starts out with a very low first year price. For example, using myself (turning 56 next week** just 9 shopping days left!!), a life insurance quote for $500,000 of 10 year term at the rate class I was recently approved at, the best rate would be with Savings Bank Life at $825 per year. If I bought a $500,000 yearly renewable term policy, the first year premium would be Aviva Life at $630 per year. Almost $200 less in that first year. A lot of people jump on that and never pay attention to year 2 and beyond.

By the third year the annual premium will surpass that of the guaranteed level 10 year term. If you compare it to a 20 year term the YRT would fly by in the 5th or 6th year. So what good is this product anyway?

There actually are a few legitimate uses for it. I wrote a policy for a person who needed coverage for a year to two years when they sold a movie production company. The coverage was only needed until final payment was made and the contract called for that to happen in no more than two years. The insurance was dramatically less and was canceled when the contract was completed at the end of one year.

It can also bridge a gap between bad offers and good offers due to health or other underwriting issues. Often a prudent recommendation to a client who is close to a time line underwriting change is to put insurance in force and then replace it when they reach that underwriting guideline. An example might be someone who just quit smoking. They are still considered a smoker for 12 months. Using me again, if I went with a 10 year term on $500,000 as a smoker the yearly rate would be $2820 with Transamerica. A yearly renewable term would be $2045 with Pacific Life. After that 12 months we could get a preferred non smoking rate with West Coast Life at at $1120 on a 10 year term, or $2100 on a 20 year term. Bridge the gap!

Bottom line. Agents used to sell yearly renewable term like it was a good deal and for a period, when it was the only term product available, well, I guess it was. Today though it should be used only for very specific purposes and clients should understand that it is for the short term only.