Indiana State Life and Health Insurance Practice Exam

What type of insurance policy adjusts its premium amount after initial years?

1. Term Life

2. Modified Whole Life

3. Universal Life

4. Whole Life

The correct answer is: Modified Whole Life

The correct choice is Modified Whole Life. This type of insurance policy begins with lower initial premiums that are intended to be more affordable during the early years of the policy. After a specified period, typically a few years, the premium amount will adjust to a higher level. Modified Whole Life is designed to accommodate policyholders who may have budget constraints at the outset but expect their financial situation to improve over time. This structure allows for a gradual increase in the policyholder's financial commitment as their income grows, which can make whole life coverage more accessible. In contrast, the other types of policies mentioned have different premium structures. Term Life policies typically have fixed premiums for the duration of the term and do not adjust. Universal Life policies allow for flexible premium payments, but they do not necessarily start with a lower premium that increases later. Whole Life policies generally have consistent premiums throughout the life of the policy. Therefore, Modified Whole Life stands out as the option where the premium amount specifically adjusts after the initial years.