Most adjustable life policies are more expensive than conventional term policies or whole life policies. a) True b) False
The correct answer and explanation is:
The correct answer is a) True.
Adjustable life insurance policies are typically more expensive than conventional term policies or whole life policies due to their flexible nature. These policies combine features of both term and whole life insurance, allowing policyholders to adjust the premium payments, death benefits, and even the type of insurance coverage as their needs change over time.
In a term life policy, the premium is fixed for a specified term (e.g., 10, 20, or 30 years), and the coverage is typically straightforward with no cash value accumulation. As a result, term life insurance is usually the least expensive option.
Whole life insurance, on the other hand, provides lifelong coverage and includes a cash value component that grows over time. While more expensive than term life, it is still a more predictable and stable product compared to adjustable life insurance. The premium for whole life policies is fixed, and the cash value accumulates in a guaranteed manner.
Adjustable life policies offer the advantage of flexibility, but this flexibility comes at a higher cost. The ability to change premium amounts, adjust the death benefit, or switch between term and permanent coverage creates more administrative complexity for the insurer. This can increase the cost of the policy, as the insurer must account for the additional administrative work and potential risk that comes with these adjustments.
Moreover, the cost of adjustable life policies may also vary depending on the insurer’s specific features and how frequently the policyholder makes adjustments. Therefore, while adjustable life insurance can provide greater customization, it is generally more expensive than conventional term or whole life policies.