What happens to the premium of an annually renewable term policy after the level term period?

The premium of an annually renewable term policy is designed to increase each year as the insured ages. This increase reflects the increased risk that the insurer takes on as the individual gets older. Insurance companies use age as a primary factor in determining risk, and as one ages, the likelihood of death increases, leading to higher premiums.

Unlike level term policies that lock in a premium for a predetermined period, annually renewable term policies allow the premium to adjust annually. The adjustments typically result in higher premiums each year rather than stabilization or decreases. This structure makes these types of policies more flexible but also more expensive over time.

In contrast, other choices present scenarios that don't align with the nature of this policy type. The premium remaining the same or decreasing does not reflect the changing risk profile, and waiving the premium for the first year is not a feature generally associated with annually renewable term policies. Thus, the correct understanding is that the premium increases annually due to the aging of the insured.