AD Banker Comprehensive Practice Exam

Which of the following policies is expected to have the lowest premium?

1. Whole life

2. Endowment to age 65

3. Single pay life

4. 10-pay life

The correct answer is: Whole life

Whole life insurance typically offers a permanent policy that combines a death benefit with a savings component, which grows over time. The premiums for whole life insurance are generally levels, which means they don't fluctuate with age or health status after they've been set. Although whole life might seem expensive at first due to its lifelong coverage and cash value component, when considering the long-term perspective, it may present lower premiums than other policies that have higher initial costs or limited duration. In contrast, options like endowment to age 65 provide a lump-sum benefit after a certain age, typically resulting in higher premiums since they need to cover a shorter period and guarantee a payout by a specific age. Single pay life policies require a larger one-time premium payment, which can lead to a significantly higher initial cost compared to the ongoing payments of a whole life policy. Lastly, a 10-pay life policy allows the policyholder to pay for coverage over just ten years, but these premiums will usually be higher because the insurance provider needs to generate premium income over a shorter period to fund the death benefit. Thus, whole life insurance, with its level premiums over a longer duration and the inclusion of a savings component that accumulates value over time, is expected to have a lower premium compared to