Tennessee Life Producer Practice Exam

Which term describes the obligation of the insurance policyholder to pay their premium?

1. Consideration

2. Policy Riders

3. Exclusions

4. Dividends

The correct answer is: Consideration

Consideration refers to the value that each party provides to the other in a contract, which in the context of an insurance policy typically includes the policyholder agreeing to pay premiums while the insurer agrees to provide coverage. This reciprocal exchange is essential for a valid contract. In insurance, the premium is the policyholder's consideration, as it is the financial commitment made in exchange for the insurance protection offered by the insurer. Other terms like policy riders, exclusions, and dividends do not pertain to this concept. Policy riders are additional features or modifications to the insurance policy, exclusions are specific conditions or circumstances that are not covered by the policy, and dividends are returns on premiums that some types of insurance policies may provide. Thus, consideration is the accurate term describing the policyholder's obligation to pay their premium.