Oklahoma Life Producer Practice Exam

If a policy offers coverage until age 100 but requires payment only for a limited time, it is known as what type of policy?

1. Whole life policy

2. Limited pay policy

3. Endowment policy

4. Single premium policy

The correct answer is: Limited pay policy

A policy that provides coverage until age 100 while requiring premium payments for only a limited time is classified as a limited pay policy. This structure allows the policyholder to pay premiums for a specified duration, such as 10, 15, or 20 years, after which they are no longer obligated to make payments, yet the policy remains in force and continues to provide coverage until the insured reaches age 100. Limited pay policies serve as an attractive option for those who wish to ensure lifetime coverage without the ongoing financial commitment of premiums throughout their entire life. They balance the benefits of whole life insurance (which provides lifelong coverage) with the convenience of a defined premium payment period. Whole life policies generally require premiums to be paid throughout the policyholder's life, which differs from the limited payment structure. Endowment policies typically provide coverage for a specific term and pay a benefit if the insured survives to the end of that term, or if they pass away during the term, which does not align with the characteristics of limited pay policies. Single premium policies require one lump-sum payment upfront and do not involve limited payments over time, again contrasting with the limited pay model.