Tennessee Life Producer Practice Exam

What does the consideration clause in a life insurance policy specify?

1. A completed application and initial premium

2. Monthly premium payments only

3. A signed waiver and initial premium

4. Annual premium payments only

The correct answer is: A completed application and initial premium

The consideration clause in a life insurance policy is a fundamental part of the contract, as it defines what each party involved in the agreement must provide to make the policy valid. This clause specifies that the policyholder's consideration consists of a completed application and the initial premium payment. The application represents the information and representations made by the insured regarding their health and lifestyle, while the initial premium is the monetary value exchanged for the insurance coverage. By providing a completed application and the initial premium, the policyholder demonstrates their commitment to the contract, thus allowing the insurer to process the application and provide coverage. This mutual exchange is critical in establishing a binding agreement between the insurer and the insured.