K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this?
The Correct Answer Is:
d. Modified Whole life
Correct Answer Explanation: d. Modified Whole life
The policy described, where the premium remains fixed for the first 5 years, then increases in year 6 and stays level thereafter while the death benefit remains constant, is characteristic of a “Modified Whole Life” insurance policy.
A Modified Whole Life policy is a type of permanent life insurance that combines features of both whole life and term life insurance. In the initial years, it functions like a term life insurance policy with a fixed premium.
This means that for the first 5 years, the policyholder pays a consistent premium amount, providing them with coverage similar to a term life policy.
After the initial 5-year period, the premium increases, but it then remains level for the remainder of the policy’s duration. This makes it distinct from a traditional whole life policy, where the premium remains level from the beginning. Despite the increase in premium, the death benefit remains constant throughout the life of the policy.
This type of policy structure can be beneficial for individuals who may have limited financial resources in the early years but anticipate an increase in income in the future.
The fixed premium in the first 5 years allows them to obtain coverage at a lower initial cost, while the premium increase in year 6 helps to support the policy’s long-term sustainability.
Now, let’s examine why the other options are not correct:
- Chris is an insured bricklayer who severed his left hand in an automobile accident. Although his primary duty cannot be performed, Chris is also a substitute high school teacher. He collects a full disability income check every month. How does his policy define total disability?
- What are analytical procedures?