Primerica Life Producer Practice Test

What is a key characteristic of an Annually Renewable Term Life policy?

1. The premiums remain constant throughout the policy

2. The policy requires a premium increase at each renewal

3. The policy provides lifetime coverage

4. The policy is convertible to permanent insurance

The correct answer is: The policy requires a premium increase at each renewal

An Annually Renewable Term Life policy is characterized by the requirement of a premium increase at each renewal. This means that each year, as the insured ages, the cost of the premium will adjust based on the individual's new age and risk profile. The primary purpose of this type of policy is to provide temporary coverage that can be renewed annually without needing to undergo a new medical underwriting process. This feature is particularly appealing for individuals seeking short-term life insurance options that can be adjusted based on changing needs. The other options do not accurately reflect the nature of Annually Renewable Term Life policies. For instance, premiums do not remain constant (which eliminates the first option), nor does this type of policy provide lifetime coverage (which dismisses the option of lifetime coverage). Lastly, while some policies can be convertible to permanent insurance, this characteristic is not inherent to all Annually Renewable Term policies, therefore making that option incorrect in this context.