Which type of term policy generally has the least expensive first-year premium payment?

Which type of term policy generally has the least expensive first-year premium payment?

• A. Level term
• B. Annually renewable term
• C. Increasing term
• D. Decreasing term

Answer: (B)

Annually renewable term policies are known for having the least expensive first-year premium payments compared to other term policies. This is primarily because the premiums are calculated based on the age of the insured at the time of the initial purchase, and typically, the first year's cost is lower since the insurer does not have to factor in future age increases initially. In contrast, level term policies tend to have a higher premium cost in the beginning since they lock in the same premium for the entire term of coverage, reflecting a more stable and predictable risk assessment. Increasing term policies typically involve rising premiums over time as they provide benefits that increase with inflation or other factors, leading to higher costs from the inception. Decreasing term policies, while often cheaper over the duration of the policy, usually start at a higher first-year premium as they involve coverage amounts that diminish over time, which can be priced differently. Overall, the structure and nature of annually renewable term insurance facilitate the lowest initial cost, allowing for cost-effective short-term coverage without the higher expenses associated with the other types.

Annually renewable term policies are known for having the least expensive first-year premium payments compared to other term policies. This is primarily because the premiums are calculated based on the age of the insured at the time of the initial purchase, and typically, the first year's cost is lower since the insurer does not have to factor in future age increases initially.

In contrast, level term policies tend to have a higher premium cost in the beginning since they lock in the same premium for the entire term of coverage, reflecting a more stable and predictable risk assessment. Increasing term policies typically involve rising premiums over time as they provide benefits that increase with inflation or other factors, leading to higher costs from the inception. Decreasing term policies, while often cheaper over the duration of the policy, usually start at a higher first-year premium as they involve coverage amounts that diminish over time, which can be priced differently.

Overall, the structure and nature of annually renewable term insurance facilitate the lowest initial cost, allowing for cost-effective short-term coverage without the higher expenses associated with the other types.