Washington Life Producer Practice Exam

In level premium permanent insurance, what accumulates to equal the face amount of the policy?

1. The annual premiums paid

2. The insurer's profit margin

3. A reserve

4. The interest on the policy

The correct answer is: A reserve

In level premium permanent insurance, the face amount of the policy is indeed equal to a reserve that accumulates over time. This reserve is created through a portion of the premiums paid by the policyholder. Level premium insurance involves paying the same premium amount throughout the life of the policy, which is typically higher in the early years compared to term insurance. The excess premium collected during the early years is set aside in the reserve. This reserve grows over time and, along with the death benefit, eventually equals the face amount of the policy when the insured passes away. This structure allows insurers to manage the risk associated with longer life expectancies and ensures that there are sufficient funds available to pay out the policy’s face amount regardless of when the insured dies. It reflects the financial stability of the policy over the long term, as the reserve acts as a safeguard for the policyholder's death benefit. The other options listed do not directly relate to the accumulation that equals the policy's face amount. Annual premiums paid may contribute to the reserve, but they do not alone ensure the accumulation of the face amount. The insurer's profit margin and the interest on the policy play a different role in the financial aspects of insurance and are not the direct accumulators of the