Which of the following is true regarding the premium in a 10-year level premium policy?

• A. The premium amount remains constant throughout the 10-year period.
• B. The premium is paid only at the beginning and end of the 10-year period.
• C. The premium increases each year as the insured ages.
• D. The premium decreases each year as the policy matures.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a 'level premium policy': A level premium policy is a type of insurance policy where the premium amount remains fixed or constant throughout the term of the policy, regardless of changes in the insured's age or other factors.
2. Analyze the options provided: The first option states that the premium remains constant throughout the 10-year period, which aligns with the definition of a level premium policy. The other options suggest changes in the premium amount, which contradict the concept of a level premium policy.
3. Eliminate incorrect options: The second option suggests premiums are paid only at the beginning and end of the period, which is not typical for level premium policies. The third option states that premiums increase each year, and the fourth option states that premiums decrease each year—both of which are inconsistent with the 'level' nature of the premium.
4. Confirm the correct answer: Based on the definition and characteristics of a level premium policy, the correct answer is the first option, which states that the premium amount remains constant throughout the 10-year period.
5. Summarize the reasoning: A level premium policy ensures financial predictability for the insured by maintaining a fixed premium amount over the policy term, regardless of age or other factors.