Connecticut Life Producer Practice exam

Which of the following applies to annually renewable term insurance?

1. The death benefit decreases over time

2. The premium increases annually based on age

3. The policy cannot be renewed after a certain age

4. The cash value accumulates yearly

The correct answer is: The premium increases annually based on age

Annually renewable term insurance is designed to be a short-term coverage option, typically with a one-year term that can be renewed each year. The correct choice points out that the premium for this type of policy increases annually based on the insured's age. As a person ages, their risk of mortality increases, which is reflected in the rising premiums charged by the insurer upon renewal. This structure allows policyholders to obtain coverage without a long-term commitment, but they will face higher costs as they continue to renew the policy over the years. In contrast, the other options do not accurately describe annually renewable term insurance. The death benefit remains level throughout the term rather than decreasing, the policy can usually be renewed indefinitely up to a certain age, and there is no cash value accumulation since term policies do not build cash value like whole life insurance.