Question 12

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

In a whole life policy, a shorter premium payment period results in higher annual premiums. This is because the insurer has less time to collect premiums before the policy matures or the insured passes away, thereby increasing the amount that must be paid annually.

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

This statement is incorrect. A longer payment period typically results in lower annual premiums because the total premium amount is spread out over a longer duration, reducing the annual payment amount.

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

This option is also incorrect. A shorter payment period leads to higher annual premiums because the insurer needs to collect the total premium in a reduced timeframe, which increases the amount needed each year.

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

This statement is incorrect as well. The payment period is directly related to the annual premium; changes in the duration of the payment period significantly affect the premium amount due each year.

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

This statement is accurate. With a shorter payment period, the total premium is concentrated into fewer payments, resulting in higher annual premiums that must be paid to maintain the policy effectively.

Conclusion

The correct answer is D, as it accurately reflects the principle that a shorter payment period necessitates higher annual premiums in a whole life insurance policy. All other options either misrepresent the relationship between the payment period and premiums or fail to recognize the direct correlation, confirming that D is the only valid choice.