Washington Life Producer Practice Exam

Which of these is a common feature of life insurance policies?

1. Interest payments on premiums

2. Premiums based on age and health

3. Dividends paid annually

4. Automatic renewal at no cost

The correct answer is: Premiums based on age and health

Premiums based on age and health are a fundamental characteristic of life insurance policies. When underwriting a life insurance policy, insurers assess the applicant's risk profile, which includes evaluating their age and overall health status. Generally, younger and healthier individuals are perceived as lower-risk clients, which results in lower premium rates. Conversely, as individuals age or if they present health issues, they may face higher premiums due to the increased risk associated with their likelihood of requiring benefits from the policy. This pricing structure is crucial for the insurer's ability to estimate potential payouts while maintaining a sustainable business model. Other features, such as interest payments on premiums, dividends, or automatic renewals at no cost, aren't standard across life insurance policies and can vary significantly between different types of policies or insurers. This highlights why age and health factor prominently in determining the cost of premiums for life coverage.