Under a Renewable Term policy,
The Correct Answer Is:
c. the renewal premium is calculated on the basis of the insured’s attained age
Correct Answer Explanation: c. the renewal premium is calculated on the basis of the insured’s attained age
The correct answer is c. “the renewal premium is calculated on the basis of the insured’s attained age.” In a Renewable Term policy, the premium is typically based on the insured’s attained age at the time of each renewal.
This means that as the insured gets older, the renewal premium will increase to reflect the higher risk associated with advancing age. This approach allows the insurance company to adjust the cost of coverage according to the changing risk profile of the insured.
In Renewable Term policies, the calculation of the renewal premium based on the insured’s attained age is fundamental to the nature of this insurance. This approach reflects the shifting risk associated with aging.
As individuals grow older, the likelihood of health issues or mortality increases, prompting insurance companies to adjust premiums to align with this elevated risk. The policy’s renewability feature allows the insured to continue coverage without reapplying or providing evidence of insurability.
However, this convenience doesn’t mean the cost remains static. Instead, the renewal premium reflects the insured’s current age, ensuring that the insurance company adequately covers the heightened risk while providing continuous coverage to the policyholder.
This age-based premium adjustment is a crucial aspect of the Renewable Term policy’s design, offering policyholders a balance between flexibility and financial feasibility. It allows individuals to secure coverage at an affordable rate initially and maintain that coverage over time, even as their risk profile evolves.
The ability to renew the policy without medical underwriting or the need for a new application simplifies the process for policyholders, ensuring ongoing protection without the hassle of proving insurability repeatedly.
This flexibility aligns with the temporary nature of term insurance, which is particularly advantageous for individuals seeking coverage during specific high-liability periods, such as mortgage years or when dependents are young.
The other options are not correct for the following reasons:
a. “the face amount is automatically adjusted at the time of renewal”:
This statement is not accurate for Renewable Term policies. In renewable term insurance, the face amount or death benefit typically remains constant throughout the term of the policy. The renewal usually involves adjusting the premium based on the insured’s attained age, but the face amount stays the same.
b. “evidence of insurability must be provided at each renewal”:
Renewable Term policies generally do not require evidence of insurability at each renewal. One of the advantages of renewable term insurance is that it allows the policyholder to renew the policy without undergoing a new medical examination or providing updated evidence of insurability.
The renewal is often guaranteed regardless of changes in the insured’s health.
d. “a new application must be completed at each renewal”:
This statement is also incorrect for Renewable Term policies. Unlike some other types of insurance, renewable term policies typically do not require a new application to be completed at each renewal.
The renewal process is usually straightforward, with the primary consideration being the adjustment of the premium based on the insured’s attained age.
In summary, Renewable Term policies offer a convenient and flexible option for individuals seeking temporary life insurance coverage. The correct answer reflects the common practice of adjusting the renewal premium based on the insured’s attained age, allowing the policy to adapt to the changing risk profile over time.
The other options are not accurate for this type of policy, as they describe features that are not typically associated with Renewable Term insurance.