Question 47

The total premium paid by a life policyowner for one policy year is greater if the premium is paid semiannually rather than annually.

When a policyowner pays premiums semiannually, they typically incur higher costs compared to making an annual payment. This is due to the added frequency of payments and the lack of discounts that are often associated with annual payments.

A) the same regardless of the frequency of payment.

This statement is incorrect because the total premium can vary significantly depending on the payment frequency. Policies often have different premium amounts based on whether payments are made annually, semiannually, or quarterly, with discounts often applied to annual payments.

B) less when paid quarterly than if paid semiannually.

This option is also incorrect. Generally, premiums paid quarterly can be higher overall than those paid semiannually due to the increased number of transactions and administrative costs associated with more frequent payments. Therefore, quarterly payments do not equate to less total premium compared to semiannual payments.

C) greater if the premium is paid semiannually rather than annually.

This statement accurately reflects the nature of life insurance premiums. Paying semiannually often results in a higher total cost compared to an annual payment because policyowners miss out on potential discounts that come with paying the full annual premium upfront.

D) based on the assumption that the insured will pay policy premiums at the end of the policy year in one payment; if paid earlier in the policy year, a discount will be allowed.

This statement is misleading. While it is true that some policies may offer discounts for early payment, it does not apply to the total premium being greater when paid semiannually. The focus of the question is on the comparative costs of different payment frequencies, not on the timing of payments.

Conclusion

The correct answer is C, as it highlights the fact that premium costs can escalate with more frequent payment schedules like semiannual payments. Options A and B misrepresent the relationship between payment frequency and total premiums, while D incorrectly emphasizes the timing of payments rather than the frequency as a factor in total costs. Thus, understanding the financial implications of payment frequency is crucial for policyowners.