Which statement best describes an Annual Renewable Term policy?

An Annual Renewable Term policy is characterized by having a level face amount while the premiums increase each year. This means that the insurance coverage remains constant throughout the policy's term, providing a predictable payout to beneficiaries in the event of the insured's death. However, the cost of the premium rises annually based on the insured's increasing age and the associated risk factors that come with it.

This unique structure allows policyholders to maintain their coverage without needing to undergo a medical examination during each renewal, making it a flexible option for those who may anticipate changes in their health status or require coverage for a limited term. This option is appealing for individuals who want to ensure they have life insurance in place even as they age, albeit at an increasing cost.

Other options do not accurately reflect the nature of an Annual Renewable Term policy. For instance, the idea that the face amount increases as the insured ages misrepresents the policy, as the amount remains constant. Similarly, the notion that both the premium and face amount decrease over time or that the policy has fixed terms without renewability is not applicable, as these features are not inherent to an Annual Renewable Term structure.