Under a Graded Premium policy, how do premiums change over time?

Under a Graded Premium policy, how do premiums change over time?

• A. Remain constant throughout
• B. Initially lower, then gradually increase
• C. Initially higher, then decrease
• D. Vary based on the insured's age

Answer: (B)

Under a Graded Premium policy, premiums are designed to start at a lower level and then gradually increase over time. This structure allows policyholders to manage their cash flow in the earlier years of the policy when they may have more limited funds, as the initial lower premium can be more affordable. As the insured ages and presumably increases their income or financial stability, the premiums begin to bump up to a higher level. This progression provides a balance between making insurance accessible when it might be most needed and aligning the premium structure more closely with the risk and costs associated with providing coverage as the insured ages.

Under a Graded Premium policy, premiums are designed to start at a lower level and then gradually increase over time. This structure allows policyholders to manage their cash flow in the earlier years of the policy when they may have more limited funds, as the initial lower premium can be more affordable. As the insured ages and presumably increases their income or financial stability, the premiums begin to bump up to a higher level. This progression provides a balance between making insurance accessible when it might be most needed and aligning the premium structure more closely with the risk and costs associated with providing coverage as the insured ages.