The premium for a Modified whole life policy is
A. higher than the typical whole life policy during the first few years and then lower than typical for the remainder
B. level for the first 5 years then decreases for the remainder of the policy
C. normally graded over a period of 20 years
D. lower than the typical whole life policy during the first few years and then higher than typical for the remainder
Answer (2)
A modified whole life policy has lower premiums initially and higher premiums later.
Typical whole life policies have level premiums throughout the policy's duration.
Option D, 'lower than the typical whole life policy during the first few years and then higher than typical for the remainder,' accurately describes a modified whole life policy.
The correct answer is \boxed{D}.
Explanation
Understanding Modified Whole Life Policy A modified whole life policy is a type of life insurance that has a lower premium for a specified initial period, typically the first few years, and a higher premium for the remainder of the policy term. This is designed to make the policy more affordable in the early years, when the insured may have less disposable income.
Comparison with Typical Whole Life Policy Comparing this to a typical whole life policy, the premiums for a typical whole life policy are level and remain the same throughout the policy's duration.
Evaluating the Options Based on this understanding, we can evaluate the given options:
A. higher than the typical whole life policy during the first few years and then lower than typical for the remainder - This is the opposite of what a modified whole life policy is. B. level for the first 5 years then decreases for the remainder of the policy - This is not the structure of a modified whole life policy. C. normally graded over a period of 20 years - This doesn't accurately describe a modified whole life policy. D. lower than the typical whole life policy during the first few years and then higher than typical for the remainder - This accurately describes a modified whole life policy.
Conclusion Therefore, the correct answer is D.
Examples
Understanding modified whole life insurance can be useful when planning for long-term financial security. For example, a young professional with student loan debt might find a modified premium structure appealing because it allows them to obtain coverage at a lower initial cost, with the understanding that premiums will increase later in life when their income is expected to be higher. This type of policy can be beneficial for individuals who anticipate their income will increase over time, making the higher future premiums more manageable. It's a strategic way to balance current affordability with future financial planning.
The premium for a modified whole life policy starts lower than that of a typical whole life policy during the first few years and then increases to become higher for the remainder of the policy. Therefore, the correct answer is D. This structure is designed to make initial costs more manageable while providing long-term coverage.
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