Minnesota Life Insurance License Practice Exam

In what type of policy does the owner pay the same premium throughout the term of the contract?

1. Level Premium policy

2. Variable Premium policy

3. Universal Life policy

4. Term Life policy

The correct answer is: Level Premium policy

A Level Premium policy is designed so that the policyholder pays the same premium for the duration of the contract. This structure offers predictability and convenience for budgeting, as the premium does not change over time, regardless of the insured individual’s age or health status. Typically, these policies are structured such that the premiums paid during the early years of the policy are higher than what is needed to cover the cost of insurance, allowing the insurer to cover the increased cost of insurance as the insured ages. In contrast, Variable Premium policies can fluctuate based on the performance of the underlying investments, which means the premiums can vary, making cost prediction less certain. Universal Life policies also offer flexible premiums that can change over time based on the policyholder’s financial decisions and the policy's cash value, rather than maintaining a consistent premium. While Term Life policies typically have fixed premiums for the term, their nature and structure are different, generally not spanning beyond a set period without renewal. The key characteristic of a Level Premium policy lies in its commitment to a consistent premium throughout the life of the contract, setting it apart from these other policy types.