Connecticut Life Producer Practice exam

What is the primary difference between continuous premium straight life and 20-year limited pay life?

1. Premiums are fixed for straight life only

2. Premiums for straight life are lower over a longer term

3. 20-year limited pay life pays premiums until age 100

4. Straight life provides no living benefits

The correct answer is: Premiums for straight life are lower over a longer term

The primary distinction between continuous premium straight life and 20-year limited pay life policies lies in their premium payment structures. Continuous premium straight life requires the policyholder to pay premiums continuously throughout their lifetime, which typically results in lower annual premiums when considered over an extended period. This long-term payment schedule contributes to the policy’s overall affordability compared to those that require higher payments for a limited period, such as 20 years. On the other hand, the 20-year limited pay life policy is structured to have premiums paid only for the first 20 years; after this period, the policyholder does not owe any more premiums, yet the coverage remains in force for the insured's lifetime. This means that although the total premium payments are higher if one were to compare them to continuous premium policies over a similar duration, the end result is that the 20-year limited pay policy has a different financial impact, especially over the long-term span of the policy. Choosing the option stating that premiums for straight life are lower over a longer term accurately reflects the nature of these policies, emphasizing the continuous lifetime payment structure as key to understanding their differences in total premium costs over time.