South Carolina Life Insurance Practice Exam

What factors determine the annual premium for annually renewable term policies?

1. The amount and payment period of the premium, the face amount, and the period for protection

2. The insured's age, health status, and lifestyle habits

3. The interest rates of the economy and the insurer's credit rating

4. The type of coverage selected and the duration of the policy

The correct answer is: The amount and payment period of the premium, the face amount, and the period for protection

The annual premium for annually renewable term policies is primarily determined by factors that include the amount and payment period of the premium, the face amount, and the period for protection. In this type of policy, the premium is set to cover the risk of mortality for the policyholder for the duration of that year. As the insured ages, the risk of death becomes higher, which leads to an increase in the premium costs upon renewal. The face amount refers to the sum that the insurer will pay out upon the death of the insured, and the premium amount will also be influenced by how long the coverage is meant to last (in this case, annually), as well as the structure of payments made. Determining the annual premium is therefore a direct reflection of these risk-related and coverage-related factors rather than other elements such as the insured’s personal health or lifestyle choices, which are covered under different policy types.