A whole life policy charges a lower premium during the first two years and then a higher, level premium for the remaining life of the contract. This premium structure is characteristic of which policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Modified whole life insurance charges premiums below the ultimate level amount for a short initial period (typically the first one to three years) and then jumps to a higher level premium that remains constant for the rest of the insured's life. The design keeps the early out-of-pocket cost low, which can make permanent coverage more affordable at the point of sale, at the price of a higher ultimate premium. This premium pattern is one of the standard premium modes described in the California objectives, along with single pay, limited pay, and level pay whole life.
Why the other options are wrong
- B) Limited-pay whole life compresses premiums into a shorter payment period, such as 10 or 20 years, after which the policy is fully paid up. It does not charge a lower premium in the early years; premiums are higher because they are concentrated.
- C) Single premium whole life requires one lump-sum premium at issue to fund the policy. There is no multi-year premium schedule at all, so it cannot describe lower premiums in the first two years.
- D) Yearly renewable term provides temporary coverage renewed each year with premiums based on attained age. It is not permanent lifetime coverage and has no modified early-year premium pattern.
Memory hook
Modified whole life = cheap intro offer, then the real price kicks in. Low first years, higher forever.