Question 50

The shorter the payment period, the higher the annual premium.

This statement accurately reflects the relationship between the premiums of a whole life policy and the premium payment period. When the payment period is shorter, the insurer must collect higher premiums annually to ensure the policy remains adequately funded over a shorter duration.

A) The shorter the payment period, the higher the annual premium.

This option is correct as it illustrates that a shorter payment period requires higher annual premiums. This is because the insurer has less time to collect premiums, thereby necessitating larger payments to cover the policy's costs and ensure full funding before the end of the payment period.

B) The longer the payment period, the higher the annual premium.

This option is incorrect. A longer payment period typically results in lower annual premiums since the total premium amount can be spread over a more extended period, reducing the amount owed each year.

C) The payment period is not related to the annual premium.

This option is also incorrect. The payment period is directly related to the annual premium, as the length of time over which premiums are paid affects the size of each individual payment. A longer payment period generally leads to lower annual premiums, while a shorter period leads to higher payments.

D) The shorter the payment period, the lower the annual premium.

This option is incorrect as well. It contradicts the established understanding that shorter payment periods result in higher annual premiums, not lower, due to the need for insurers to recover costs more quickly.

Conclusion

In summary, the assertion that "the shorter the payment period, the higher the annual premium" is definitively correct, as it aligns with the principles of life insurance premium structures. All other options fail to accurately reflect the relationship between payment periods and premiums, highlighting the importance of understanding how these factors interact in whole life policies.