Rhode Island Life Insurance Practice Exam

What term describes the amount paid by a policyholder for life insurance coverage?

1. Premium

2. Deductible

3. Claim

4. Dividend

The correct answer is: Premium

The appropriate term to describe the amount paid by a policyholder for life insurance coverage is "premium." In the context of life insurance, the premium is the periodic payment made by the policyholder to the insurance company in exchange for the financial protection and benefits that the policy provides. This payment is typically made monthly, quarterly, or annually and is essential for keeping the insurance coverage active. To further clarify, the other terms do not relate to the payment made for insurance coverage. A deductible refers to the amount a policyholder must pay out-of-pocket before the insurance coverage kicks in for claims, which is more relevant in health or auto insurance. A claim is a request made by the policyholder to the insurer for payment or benefits after a covered event occurs, while a dividend is a return of a portion of the premium paid, which is usually applicable in participating insurance policies. Understanding these definitions helps reinforce why "premium" is the correct term in the context of life insurance coverage.