How do "annual renewable terms" function in life insurance?

Annual renewable term life insurance functions by providing coverage that is renewed each year. At the start of each policy year, the policyholder has the option to renew the term for another year. However, with each renewal, premiums typically increase based on the insured's age and possibly changes in health conditions. This structure allows individuals to maintain their life insurance coverage in the short term and provides flexibility, as they can reassess their insurance needs each year.

The other options describe characteristics that do not apply to annual renewable term policies. Lifelong coverage without renewal or the need for one-time payments for fixed terms pertains to whole life or permanent insurance, which have different structures and benefits. Lower premiums each year are not characteristic of this type of policy; instead, premiums usually rise as the insured ages. Understanding how annual renewable terms work helps policyholders make informed decisions about their life insurance needs as circumstances change over the years.