Washington Life Producer Practice Exam

Which option is the best example of a limited pay life insurance policy?

1. Term life policy with annual premiums

2. Whole life policy with premiums paid up after 20 years

3. Universal life policy with flexible premiums

4. Variable life policy with investment options

The correct answer is: Whole life policy with premiums paid up after 20 years

A whole life policy with premiums paid up after 20 years is indeed the best example of a limited pay life insurance policy. This type of policy allows policyholders to pay premiums for a specified time period, often for a set number of years, after which the policy is considered fully paid up. This means that the insured retains coverage for their lifetime without the need to make further premium payments once the payment period concludes. In contrast, other options demonstrate different characteristics of life insurance: a term life policy typically requires annual premiums and does not build cash value; a universal life policy features flexible premiums and offers more adaptability in terms of payment; and a variable life policy allows the policyholder to allocate premiums among various investment options, which can lead to variable cash values. These features do not align with the defined structure of a limited pay life insurance policy, which focuses on a fixed premium payment timeline.