South Carolina Life and Health Practice Exam

Which aspect of an insurance policy is influenced by the frequency of premium payments?

1. Coverage amount

2. Cost

3. Policy duration

4. Claim limits

The correct answer is: Cost

The frequency of premium payments primarily influences the cost of an insurance policy. When premiums are paid more frequently, such as monthly rather than annually, the insurer may charge additional administrative fees or higher rates, leading to an overall increase in the policy’s cost. This is due to the increased administrative expenses involved in processing multiple payments as opposed to a single annual payment. Understanding this relationship is crucial for policyholders when selecting their preferred premium payment schedule, as it can significantly affect their overall financial commitment to the policy. Therefore, recognizing the impact of payment frequency on costs helps consumers make informed decisions regarding their insurance coverage.