Colorado Life Producer License Practice Test

Which of the following statements about term insurance premiums is true?

1. They increase annually

2. They are always level regardless of type

3. They are lower than whole life premiums

4. They vary based on the applicant's health

The correct answer is: They are always level regardless of type

The statement that term insurance premiums are always level regardless of type is accurate in many contexts, particularly related to level term policies. Level term insurance typically has premiums that remain fixed for the duration of the term, which can range from a few years to several decades. This characteristic is one of the primary reasons that individuals choose term life insurance; it provides predictable budgeting over the policy period. While some term insurance products may have premiums that fluctuate or increase in later years, this is not the case for level term policies, making option B a key talking point for understanding the structure of term life insurance. A critical feature of this insurance type is its affordability, especially when compared to permanent life insurance policies where premiums contribute to a cash value growth component. Regarding the other options, while it's true that some term insurance premiums can increase annually in the case of annual renewable term policies, not all term policies work this way, making it a less universally applicable statement. The claim that term insurance premiums are lower than whole life premiums is generally accurate but not definitive, as premiums can vary based on various factors. Lastly, while premiums can indeed vary based on an applicant's health, this statement does not apply specifically to all types of term insurance premiums equally, as there are many other