Arkansas Life and Health Insurance Practice Exam

Which of the following term policies cost the least all other factors being the same?

1. Annual renewable

2. Decreasing

3. Nonrenewable and non-convertible

4. Renewable and convertible

The correct answer is: Annual renewable

In this scenario, the term policy that costs the least when all other factors are the same is an Annual Renewable policy. This is because an Annual Renewable policy typically starts with lower premiums compared to other term policies. With an Annual Renewable policy, the premium increases each year as the insured gets older, but initially, the cost is lower than other term policies. Decreasing term policies have a decreasing death benefit over time, which may affect the cost differently compared to an Annual Renewable policy. Nonrenewable and non-convertible policies do not offer the flexibility of renewal or conversion, which can impact the cost as well. Renewable and convertible policies allow the policy to be renewed and converted to a permanent policy, which may come with higher initial premiums compared to an Annual Renewable policy. Therefore, among the options provided, the Annual Renewable policy costs the least when all other factors are equal.