Maryland Life and Health Insurance License Practice Exam

Under what condition might a modified whole life policy's premium be lower initially?

1. Because of reduced coverage options

2. Due to introductory offers

3. To encourage long-term investment

4. As part of a cost-benefit analysis

The correct answer is: To encourage long-term investment

A modified whole life policy typically features lower premiums during the initial years of the policy, which can make it more appealing for individuals looking for affordable coverage at the onset. This lower initial premium is designed to encourage policyholders to commit to the policy for the long term. The idea is that as the insured’s financial situation stabilizes or improves over time, they will be more able to manage the higher premiums that will apply in later years. This structure allows for gradual financial investment in the policy, facilitating a greater likelihood of retention and continued premium payments as the policy matures. Consequently, individuals can see the value in long-term planning and investment in their life insurance coverage.