Tennessee Life Producer Practice Exam

What effect does choosing a monthly premium payment mode on a Whole Life insurance policy have on the gross premium?

1. The gross premium is lower

2. The gross premium remains the same

3. The gross premium is higher

4. The gross premium is variable

The correct answer is: The gross premium is higher

Choosing a monthly premium payment mode on a Whole Life insurance policy results in a higher gross premium compared to paying annually or semi-annually. This increase occurs because insurers typically charge a slightly higher rate for monthly payments to cover the additional administrative costs associated with processing these payments. When premiums are paid more frequently, the insurer faces increased risks and costs related to managing cash flow and handling smaller transactions regularly. By opting for a monthly payment plan, policyholders might have more immediate financial flexibility, but they do incur additional costs reflected in a higher gross premium. Therefore, it is important for potential buyers to weigh this cost against their budget and payment preferences.