PSI Life Exam Practice Test

What best describes a limited pay life insurance policy?

1. A whole life insurance policy where the premiums are paid up after 20 years

2. A term life policy with premiums paid for a specific term

3. A whole life policy with increasing premiums over time

4. An investment account with life insurance benefits

The correct answer is: A whole life insurance policy where the premiums are paid up after 20 years

A limited pay life insurance policy is characterized by the fact that premiums are paid for a specified, finite period rather than throughout the lifetime of the insured. In the case of option A, it accurately describes a whole life insurance policy where the premiums are paid up after a specific duration, such as 20 years. This means that after paying premiums for that set period, the policyholder no longer needs to make premium payments, yet the policy remains in force for the lifetime of the insured. This structure is particularly appealing to those who want to ensure they have permanent life insurance coverage without paying premiums into their advanced years. While term life policies provide coverage for a specified term with declining premiums, they do not offer the same guarantees or cash values associated with whole life policies. Similarly, options that mention increasing premiums or investment accounts do not align with the essence of a limited pay life insurance policy, which maintains stable premiums for a limited duration before becoming paid-up. Thus, the clarity and completeness of A make it the best answer to the question.