L&HNationaleasy
A 30-year-old buys a 20-year level term policy for $500,000 and her colleague buys a $500,000 Annually Renewable Term (ART) policy. Over the 20-year horizon, the ART premium structure will most likely:
AStay level for 20 years like the level term policy
BStart higher than level term in year 1 and decrease each year as the insurer recoups acquisition cost
Start lower than level term in year 1 and increase each year based on attained-age mortality
DRemain level for 5 years, then convert automatically to whole life
Why this is the answer
Annually Renewable Term renews each year at the attained-age premium without new evidence of insurability, up to a maximum renewal age stated in the contract. Premiums start very low at younger ages and rise sharply at older ages, eventually exceeding level term premium and becoming prohibitively expensive in late middle age. Level term smooths the rising mortality curve across a fixed level period (10-, 15-, 20-, 30-year) so the policyowner pays a constant premium; after the level period ends, the policy typically reverts to ART-style annual increases.
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