Question

Why do insurance companies use level premiums for life insurance policies?

a.

Level premiums allow insurance companies to charge higher rates to younger individuals.

b.

Level premiums ensure that the premiums collected in earlier years cover the deficits in later years.

c.

Level premiums are required for short-term life insurance contracts.

d.

Level premiums allow for more flexibility in adjusting premium rates as individuals age.

Posted under IC38 Life Insurance Agent Exam

Answer: (b).Level premiums ensure that the premiums collected in earlier years cover the deficits in later years. Explanation:Insurance companies use level premiums for life insurance policies because they ensure that the excess premiums collected in earlier years cover the deficits in later years. This makes it possible to keep premiums constant over the life of the policy.

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Q. Why do insurance companies use level premiums for life insurance policies?
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