Certified Financial Consultant (CFC) Practice Exam

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Prepare for the Certified Financial Consultant Exam. Enhance your understanding with detailed questions, hints, and explanations. Boost your confidence for the CFC test!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

Which premium payment mode results in the highest annual cost for a life insurance policy?

Monthly
Quarterly
Semi-annual
Annual

The correct answer is: Monthly

The option indicating that the monthly premium payment mode results in the highest annual cost for a life insurance policy is accurate because insurance companies typically charge higher overall costs for more frequent payment schedules. When premiums are paid monthly, insurers often assess an additional administrative fee for processing payments more frequently than once a year. This leads to a situation where, while the monthly installments may seem budget-friendly, the total amount paid over the year ends up being greater than if the policyholder chose to pay annually. Furthermore, insurers often provide discounts or reduced rates for annual payment plans because it minimizes the administrative burden on the company and guarantees that the premium is collected in advance. This allows policyholders who opt for annual payments to save money compared to those who choose monthly, quarterly, or semi-annual payment options. In summary, because of the added costs associated with processing monthly payments, this method typically leads to the highest annual cost for a life insurance policy, validating the correct choice.