Tennessee Life Producer Practice Exam

What provision allows a policyowner to pay premiums more than once a year?

1. Mode of Premium

2. Grace Period

3. Automatic Premium Loan

4. Conversion Option

The correct answer is: Mode of Premium

The provision that allows a policyowner to pay premiums more than once a year is referred to as the mode of premium. This term encompasses the various frequencies with which the policyowner can make premium payments, such as annually, semi-annually, quarterly, or monthly. By selecting a specific mode of premium, the policyowner has flexibility in managing their budget and payment timings according to their financial situation. Choosing a more frequent payment schedule might lead to slightly higher overall premium costs, as insurance companies often charge administrative fees for processing more frequent payments. However, it also provides the advantage of spreading the cost of premiums throughout the year instead of making a lump sum payment. The grace period relates to the timeframe in which a policy remains in force after a missed premium payment and does not directly pertain to payment frequency. The automatic premium loan provision allows the insurer to cover missed premium payments using the policy's cash value, while the conversion option allows for the change of policy types, usually from term to permanent insurance. None of these options address the frequency of premium payments in the way the mode of premium does.