PSI Ohio Insurance Practice Exam

Why do equity-indexed life insurance policies have an increased premium?

1. For increased risk mitigation

2. For increased marketing costs

3. For increased amount of protection

4. For increased administrative fees

The correct answer is: For increased amount of protection

Equity-indexed life insurance policies typically feature increased premiums primarily due to the additional amount of protection they offer. These policies not only provide a death benefit but also include a cash value component that can grow based on the performance of a selected equity index. This growth potential makes them attractive to consumers seeking a blend of life insurance and investment. The increased premium reflects the insurer’s commitment to delivering this dual benefit: a guaranteed death benefit along with potential cash value growth tied to market performance. The complexity and the guarantees associated with these policies necessitate advanced actuarial calculations and reserve requirements, ultimately leading to higher premiums compared to traditional life insurance products. Understanding the structure of equity-indexed life insurance is important as it highlights how the policies are designed to provide both security and growth, justifying the additional cost to the policyholder.