Texas Life Agent Practice Exam

Which of the following policies typically has the highest initial premium?

1. Term Life Insurance

2. Whole Life Insurance

3. Universal Life Insurance

4. Variable Life Insurance

The correct answer is: Whole Life Insurance

Whole life insurance typically has the highest initial premium among the different types of life insurance policies. This is primarily due to its structure, which is designed to provide lifetime coverage, guaranteed cash value accumulation, and stable premiums throughout the policyholder's life. Whole life insurance combines both insurance protection and a savings component, which builds cash value over time. The premiums are generally higher than those for term life insurance, which only provides death benefit protection without the cash value aspect. Moreover, the higher initial premium reflects the insurer's obligation to provide lifelong coverage and the expected return on the cash value portion. In contrast, term life insurance is designed to cover a specific period, making its initial premiums much lower since it does not accumulate cash value. Universal and variable life insurance policies, while more flexible in terms of premiums and death benefits, usually feature initial premiums that can be lower than whole life insurance, especially if the insured opts for a lower death benefit or adjusts their investment strategies.