Colorado Life Producer License Practice Test

Which type of life insurance policy is classified as a traditional level premium contract?

1. Universal life

2. Term life

3. Whole life

4. Straight life

The correct answer is: Straight life

The classification of a traditional level premium contract is best associated with a straight life insurance policy, also known as whole life insurance. A straight life policy requires the policyholder to pay a consistent premium amount over the duration of the contract, which can extend throughout the insured's lifetime. The premiums are structured to remain level, providing predictability for the policyholder in terms of cost and coverage. This feature is significant because it allows individuals to budget their insurance expenses over many years, knowing that they are paying the same amount regardless of their age or health status. Whole life policies, including straight life, also accumulate cash value over time, which can be borrowed against or withdrawn by the policyholder. This aspect further distinguishes it from other types of life insurance that may not provide a cash value component and may have varying premium amounts, such as universal life or term life policies, which do not feature a guaranteed level premium throughout the contract's life. The term life option typically only covers the insured for a specific period and does not accumulate cash value, while universal life offers flexible premiums that can change over time.