New York Child Abuse Identification and Reporting Practice Exam

What typically happens to premiums when an individual becomes older in a life insurance policy?

1. They decrease significantly

2. They remain the same

3. They may increase due to higher risk

4. They are waived if the individual is healthy

The correct answer is: They may increase due to higher risk

As individuals age, the risk associated with life insurance policies increases due to the higher likelihood of health issues and mortality. Insurance companies assess this risk when determining premiums, and older individuals may be viewed as a higher liability. Consequently, their premiums often rise in order to compensate for the increased risk to the insurer. This adjustment reflects the company's need to maintain financial stability while offering coverage. In contrast, options suggesting that premiums decrease significantly or remain the same do not account for the actuarial considerations considered by insurance providers. Similarly, the idea that premiums are waived if the individual is healthy is not standard practice in the industry, as all policyholders are generally required to pay premiums based on their assessed risk.