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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What defines a limited pay life policy?

Requires premium payments for a specified number of years or until a specified age is reached
Can only be purchased by individuals on a specified limited income
Start off with small premium payments and then they increase, but only up to a specified limit
Is offered in limited face amounts only

The correct answer is: Requires premium payments for a specified number of years or until a specified age is reached

A limited pay life policy is characterized by requiring premium payments for a predetermined number of years or until the policyholder reaches a specified age. This means that once the payment period is complete, the policy remains in force for the insured's lifetime without the need for any further premium payments. This structure allows policyholders to have the peace of mind of knowing their financial commitment is time-limited while still providing lifelong coverage. The other options relate to different aspects of life insurance policies but do not correctly define what a limited pay life policy entails. For instance, limited income considerations and face amount restrictions do not pertain to the payment structure of the policy itself. Additionally, policies that start with small premiums and then increase are generally referred to as graded premium policies, not limited pay policies.