Life License Qualification Program (LLQP) Practice Exam

What type of policy has fixed premiums for an initial period before they increase?

1. Variable Life

2. Adjustable Life

3. Graded Premium Whole Life

4. Modified Whole Life

The correct answer is: Modified Whole Life

The type of policy that has fixed premiums for an initial period before they increase is the modified whole life policy. This policy structure is designed to offer consumers the benefit of lower initial premiums, which can make insurance more accessible at the outset. After this initial period, the premiums will rise to a level that reflects the actual cost of insurance as the insured ages. Modified whole life insurance typically features a set premium for the first few years—often five to ten years—and after this introductory phase, the premiums increase to a level that is fixed for the remainder of the policy. This appeals particularly to individuals who expect their financial circumstances to improve or foresee that they might be able to afford higher premiums in the future. In contrast, variable life policies allow for fluctuating premiums and death benefits based on the performance of underlying investments. Adjustable life policies provide flexibility in adjusting the premiums or coverage amounts but do not feature fixed premiums followed by a mandatory increase. Graded premium whole life policies also provide a structure of initial low premiums that gradually increase but generally aim for a specific schedule of increases rather than the more sudden hikes seen in modified whole life policies. Thus, the modified whole life option stands out due to its distinctive feature of offering fixed premiums followed by a scheduled increase.