How does an annually renewable term insurance policy work?

An annually renewable term insurance policy is designed to provide coverage for one year at a time, with the option to renew the policy each year. As the insured ages, the risk of mortality increases, which results in the premiums also increasing according to the attained age of the insured. This means that with each renewal, the premium will reflect the current age of the policyholder, leading to higher costs as the years go by.

This structure allows for continued coverage without the need for a medical exam at each renewal, but it also means that policyholders will experience rising costs over time.

In contrast, policies that do not increase premiums based on age, such as level term insurance, would not follow this model. Additionally, decreasing death benefits or non-renewability are characteristic of different types of insurance arrangements and do not apply to the annual renewable term, further clarifying the unique nature of how premiums are managed in such policies.