Oklahoma Life Producer Practice Exam

What does a Graded Premium Whole Life policy provide during the early years of the contract?

1. Permanent protection

2. Higher premiums

3. Cash value payout

4. Decreasing benefits

The correct answer is: Permanent protection

A Graded Premium Whole Life policy provides permanent protection during the early years of the contract. This means that the policy will remain in effect for the lifetime of the insured, ensuring coverage regardless of changes in health status. The graded premium aspect refers to the initial premiums being lower than standard whole life premiums, with scheduled increases occurring over time. While the premiums start off low, the assurance of lifelong coverage is a key benefit that distinguishes this type of policy from term life insurance or other forms of temporary coverage. The choice of higher premiums is misleading in this context because, although premiums do escalate as part of the graded strategy, it's the structure of the policy that primarily offers permanent coverage. Cash value payout is relevant but not specific to the early years of the contract, as cash value typically accumulates gradually over time. Decreasing benefits do not apply here, as a graded premium policy maintains the original death benefit regardless of premium fluctuations.