Colorado Life Producer License Practice Test

Which type of life insurance increases its premium annually based on attained age?

1. Universal life insurance

2. Whole life insurance

3. Annually renewable term

4. Variable life insurance

The correct answer is: Annually renewable term

Annually renewable term life insurance is designed to increase its premium each year based on the insured's attained age. This policy type provides coverage for just one year at a time, with the option to renew annually without requiring a new medical exam. As the insured ages, the risk of mortality increases, leading insurers to adjust the premium upward each year to reflect that higher risk. In contrast, whole life insurance provides a level premium that does not change over the life of the policy, making it predictable but typically more expensive than term options initially. Universal life insurance also allows for flexibility in premiums but does not base its increases purely on attained age in the same way an annually renewable term does. Variable life insurance features premiums that may be flexible, and the death benefit and cash values can fluctuate based on the performance of investment options chosen, but it doesn't specifically increase premiums based purely on age. Therefore, annually renewable term policies uniquely adapt their premiums each year with the aging of the insured, differentiating them from the other types of life insurance listed.