Washington Life Producer Practice Exam

What does the term "premium" refer to in a life insurance contract?

1. The amount paid for the insurance coverage

2. The cash value accumulated by the policy

3. The amount of the death benefit

4. The fees associated with policy administration

The correct answer is: The amount paid for the insurance coverage

The term "premium" in a life insurance contract refers to the amount paid for the insurance coverage. This is the regular payment that policyholders make to the insurance company in exchange for the protection and benefits provided by the policy. The premium is typically calculated based on various factors, including the insured individual's age, health status, and the amount of coverage desired. Understanding this concept is crucial, as the premium directly affects the policyholder’s financial commitment and determines the policy’s active status. In contrast, other concepts like cash value, death benefits, and administrative fees, while important in the broader context of a life insurance policy, do not represent what the premium itself is. Hence, knowing the definition and purpose of the premium is fundamental for anyone involved in life insurance.