AD Banker Comprehensive Practice Exam

What is usually considered a primary factor in determining a life insurance premium?

1. The insured's occupation

2. The insured's age

3. The insured's lifestyle

4. The insured's health status

The correct answer is: The insured's age

The insured's age is widely recognized as a primary factor in determining a life insurance premium because it has a significant impact on the insurer's assessment of risk. Age is closely correlated with life expectancy, meaning that, generally, younger individuals are less likely to experience health issues or pass away compared to older individuals. As a result, premiums tend to be lower for younger policyholders, reflecting their longer expected lifespan and associated reduced risk for the insurance company. Other factors, while potentially influential, typically do not have the same level of impact as age. For instance, an individual's occupation may present certain risks, but it is often secondary to age when calculating premiums. Similarly, lifestyle choices and health status are important, yet they often serve as modifiers to the basic premium rate that is largely influenced by age. Therefore, while all these factors play a role in the underwriting process, the insured's age stands out as the primary determinant in setting life insurance premiums.