Tennessee Life Producer Practice Exam

In a Renewable Term policy, how is the renewal premium determined?

1. Based on the initial premium set at the policy start

2. Based on the insured's attained age

3. Fixed for the duration of the policy

4. According to the insurance company's discretion

The correct answer is: Based on the insured's attained age

In a Renewable Term policy, the renewal premium is determined based on the insured's attained age. As the insured ages, the risk to the insurance company increases, which is reflected in the premium at renewal. Each time the policy is renewed, the premium is recalculated according to the age of the insured at that time. This approach ensures that the premium aligns more closely with the current risk associated with the insured's aging. The other options do not accurately reflect how premiums in these policies are structured. Fixed premiums do not apply because they generally increase as the insured ages. Initial premiums set at the policy start do not remain relevant upon renewal, as they tend to be lower than what would be charged based on the insured's current age. Lastly, while the insurance company has discretion in certain aspects of underwriting and pricing, the renewal premium structure is heavily regulated and follows the attained age principle rather than being entirely at the company's discretion.