South Carolina Life Insurance Practice Exam

How is the premium determined in a joint life insurance policy?

1. Based on the younger insured's age

2. Based on the average age of the insureds

3. Fixed at the age of the oldest insured

4. At the time of application only

The correct answer is: Based on the average age of the insureds

In a joint life insurance policy, the premium is determined based on the average age of the insured individuals. This approach takes into account the mortality risk associated with both parties and helps the insurer accurately estimate the likelihood of claims based on the life expectancy of each insured. By calculating the premium in this manner, the insurer can provide a fair and equitable rate that reflects the overall risk of insuring multiple lives. Using the average age helps to balance the risk since different ages can imply different risk levels; thus, this method allows for a more comprehensive assessment of the insureds' combined profiles. This is particularly important in joint policies, as they often cover couples or business partners, making a straightforward calculation from either individual alone potentially misleading.