Multiple Choice
Which type of accounting involves communicating financial information to large numbers of external users, such as investors and creditors, at one time?
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
Which of the following is true regarding the premium in term life insurance policies?
A
Premiums for term policies increase automatically each year regardless of the policy type.
B
Premiums for term policies accumulate cash value over time.
C
Premiums for term policies are paid only at the end of the policy term.
D
Premiums for term policies are generally lower than those for whole life policies.
Verified step by step guidance1
Understand the nature of term life insurance policies: Term life insurance provides coverage for a specific period (term) and does not accumulate cash value over time. It is designed to offer financial protection in case of the policyholder's death during the term.
Analyze the first statement: 'Premiums for term policies increase automatically each year regardless of the policy type.' This is not true for all term policies. Some term policies have level premiums, meaning the premium remains constant throughout the term.
Analyze the second statement: 'Premiums for term policies accumulate cash value over time.' This is incorrect because term life insurance does not have a savings or investment component; it only provides death benefit coverage.
Analyze the third statement: 'Premiums for term policies are paid only at the end of the policy term.' This is incorrect because premiums for term policies are typically paid periodically (e.g., monthly, quarterly, or annually) during the term, not at the end.
Evaluate the fourth statement: 'Premiums for term policies are generally lower than those for whole life policies.' This is correct because term life insurance is purely for coverage without a cash value component, making it more affordable compared to whole life insurance, which includes both coverage and a savings component.
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