PSI Life Exam Practice Test 2026 - Free Life Insurance Exam Questions and Study Guide

In the context of life insurance, the term "premium" specifically refers to the amount that the policyholder pays to the insurer in exchange for coverage. This payment can be made on various schedules, such as monthly, quarterly, or annually, depending on the terms of the policy. The purpose of paying premiums is to maintain the policy in force and to ensure that the insurer will pay out the agreed-upon benefit amount upon the death of the insured.

Understanding this concept is critical because the premium directly influences the overall cost of the insurance policy and can affect the coverage provided. If premiums are not paid, the policy may lapse, leading to a loss of coverage and benefits. The other options, while related to life insurance, do not accurately define what a premium is. The amount paid by the insurer to the policyholder generally refers to a benefit or settlement, not a premium, while the benefit amount paid upon death is the death benefit, and the cash value accumulated pertains to policies that have a savings component, separate from the concept of premiums.