AD Banker Comprehensive Practice Exam

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Enhance your exam readiness with the AD Banker Comprehensive Exam guide. Includes flashcards and multiple-choice questions with explanations.

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An indeterminate premium policy typically implies what?

Whole life insurance with flexible premium payments
A limited payment schedule
A low initial premium adjusting with the company's performance
An interest-sensitive premium on a whole life policy

The correct answer is: A low initial premium adjusting with the company's performance

An indeterminate premium policy is designed to provide flexibility in premium payments based on the insurance company's performance. This means that the policyholder initially pays a lower premium, which can be adjusted in the future depending on how well the insurer performs financially. Such policies are typically associated with whole life insurance products where the premium may be subject to change; thus, the premium can increase or decrease based on the company's investment returns or other financial metrics. This approach allows policyholders some financial comfort at the outset, as they are not burdened by high initial payments. However, it does come with the understanding that future premiums may rise if the company's performance warrants it. Therefore, the characteristics of an indeterminate premium policy directly align with the idea of a low initial premium that can adjust as the insurer's financial situation changes.