LLQP practice question 10 of 35

Dr. Kumar owns a 10-year term life insurance policy with a level death benefit of $500,000 issued by Expert Health & Life Inc. The policy is…

Dr. Kumar owns a 10-year term life insurance policy with a level death benefit of $500,000 issued by Expert Health & Life Inc. The policy is renewable, convertible to age 70, and contains no additional riders. Dr. Kumar is the life insured. She is single, has no dependents, and her estate is named as the policy’s beneficiary. The current premiums are $365 per year, based on standard health, non-smoker rates. As the policy is due to renew in a few months, Dr. Kumar meets with Kavya, an insurance agent referred to her by a mutual friend. Kavya reviews all of the information presented above, but notices a missing detail. What additional information about Dr. Kumar's policy does Kavya need to complete her review?

Answer options

A: The policy conversion age.

B: The policy death benefit amount at renewal.

C: The policy cash surrender value (CSV).

D: The policy premiums upon renewal. Correct answer

Correct Answer:

D. The policy premiums upon renewal.

Explanation

The scenario describes a 10-year renewable term life insurance policy. A fundamental characteristic of this type of policy is that while the death benefit remains level, the premium increases at each renewal to reflect the insured's attained age and the associated higher mortality risk. The current premium of $365 is based on Dr. Kumar's age when the policy was first issued. To provide a complete review and advise Dr. Kumar on her options (renew, convert, or replace), Kavya must know the new, higher premium that will be charged upon renewal. This is the most critical piece of missing information.

Why Incorrect

A. The policy conversion age is already provided in the scenario, which states the policy is "convertible to age 70".
B. The policy is described as having a "level death benefit," meaning the coverage amount of $500,000 remains the same at renewal.
C. Standard term life insurance policies provide pure death benefit protection and do not accumulate a cash surrender value (CSV).

References

1. IFSE Institute, Life Insurance (LLQP) - Module 4: Term Life Insurance, (2023), Section 2.2 "Renewable Term". This section explains that with renewable term insurance, premiums increase at each renewal date to reflect the insured's attained age.

2. Vaughan, E. J., & Vaughan, T. M. (2014). Fundamentals of Risk and Insurance (11th ed.). Wiley. Chapter 11, "The Life Insurance Contract," in the section on "Term Insurance," clarifies that the renewal provision allows the policyowner to renew the policy at the end of the term without evidence of insurability, but at a premium rate based on their attained age.

3. Harrington, S. E., & Niehaus, G. R. (2003). Risk Management and Insurance (2nd ed.). McGraw-Hill/Irwin. Chapter 20, "Life Insurance," under the heading "Term Life Insurance," specifies that yearly renewable term policies have premiums that increase each year as the probability of death increases. This principle applies to all renewable term policies at their renewal point.

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