I have pretty much what you describe "the key" that unlocks the program. And I do send customers the support/license renewal notice about 40 days before it expires. Right now the program works (does not stop) even if they choose not to pay. There is a message that says "Support Expired" but I will change it to "License Expired." And I am even considering to set the code to stop certain features of the program say after 60 days of non-payment. But mostly I want to include this in the initial proposal so avoid misunderstanding.
Thank you.

>I have found that "people" don't like that "stop working" (perhaps the person who knew about it left, and the new person did not know about it - so you can expect an disturbing call sometimes in this situation), so I prefer to make it clear they will receive a "key" of some sort so they can continue to use the app uninterrupted "for the next license period." I know it sounds like splitting hairs, but people look at things different sometiems. About 30 days before the next license is do, I start giving an occasional (once the first two weeks, then a couple times the next two weeks) reminder within the program to remind them to renew the license so they can receive the new key. I also include a link for them to paypal me right then.
>
>>>>I need to describe to a prospective customer that the product licensing requires annual license fees. Is "annual license fee" a good term to use in this context? Or you would suggest a different terminology?
>>>>TIA
>>>
>>>It sounds good to me. You might also consider talking about a "maintenance fee".
>>
>>There is actually a "support and maintenance fee." But I wanted to make sure that the prosective customer understands that if they do not pay the "annual license fee" the program will stop working.
>>Thank you.