Washington Life Producer Practice Exam

In life insurance, what does the term "premium" refer to?

1. The amount payable upon death

2. The cost of the insurance policy

3. The cash value of the policy

4. The total benefits provided

The correct answer is: The cost of the insurance policy

In life insurance, the term "premium" specifically refers to the cost of the insurance policy that the policyholder must pay in order to keep the coverage active. This amount is typically paid on a regular basis, such as monthly or annually. The premium is determined based on various factors, including the insured individual's age, health, and the coverage amount selected. Understanding the premium is fundamental to insurance, as it is the payment that funds the policy and provides the policyholder with the promised benefits in the event of a claim. This payment is crucial for the insurance company to manage risk and maintain the underwriting process, ensuring that they can provide benefits to beneficiaries when needed. In contrast, the other options refer to different aspects of life insurance. The amount payable upon death, the cash value of the policy, and the total benefits provided all represent outputs of the insurance policy, not the costs associated with maintaining the policy itself. This distinction helps clarify the core concept of premium within the life insurance industry.