What occurs in the later years of a policy under level premium funding?

In the context of a level premium funding policy, during the later years of the policy, the initial premiums that were paid are higher than what is necessary to cover the actual insurance costs in the early years. This results in a build-up of cash value within the policy. As the policyholder ages and the cost of insurance tends to increase, the earlier higher premiums effectively create a surplus that is used to offset these increasing costs.

This mechanism allows the insured to maintain a consistent premium payment throughout the policy's duration, while the excess from those early payments helps manage and mitigate the rising premiums associated with increased mortality risk as the insured gets older. This approach balances the costs over the life of the policy, leading to a more predictable financial strategy for policyholders.

In contrast, other options do not accurately describe the nature of level premium funding. Premium decreases, a policy ceasing to exist, or premiums being returned to the insured do not align with the fundamental principles of how level premium funding operates.