Tennessee Insurance Practice Exam

Which factor is primarily considered when determining the premium rate for a Whole Life Policy?

1. Policyholder's age

2. Policy benefits

3. Risk classification

4. Investment options

The correct answer is: Risk classification

When determining the premium rate for a Whole Life Policy, the primary factor considered is risk classification. This classification assesses the likelihood of an insured individual filing a claim based on various criteria, including health status, lifestyle choices, and other risk factors. Insurance companies use this information to evaluate the potential cost of providing coverage to a policyholder. Though the policyholder's age is important since it can influence the risk and the policy benefits are essential for understanding the coverage provided, these factors play a supportive rather than primary role in rate determination. Investment options are also not typically a direct factor in calculating premiums for whole life policies, as the focus is more on the guarantees and risks associated with the life insurance itself. Thus, risk classification stands out as the central factor in premium setting for these policies.