Oklahoma Life Producer Practice Exam

Which term life policy is most expensive in the first year?

1. Annual Renewable Term (ART)

2. Level

3. Renewable

4. Convertible

The correct answer is: Level

The most expensive term life policy in the first year is the level term policy. This is primarily because level term policies offer a fixed premium that remains the same for the entire term of coverage, whether it is 10, 20, or even 30 years. When you purchase a level term policy, you're essentially paying for the predictability and stability of that premium over the course of the policy. In the first year, the cost of the level premium reflects the insured's age and health status at the time of purchase, which can be relatively high compared to other term options that might have lower initial premiums but increase over time. For example, in the case of annual renewable term policies, the initial premium may be lower, but it increases each year as the insured ages, ultimately leading to higher cumulative costs over time. That stability of premium and guaranteed coverage for the entire term makes level term policies more expensive in the first year relative to other types of term insurance that may offer lower initial premiums but can become more costly later on. This upfront cost is a trade-off for long-term security and predictability in premium payments.