Arizona Life and Health Practice Exam

When a policy is renewed under a renewable term life insurance agreement, what is affected?

1. Policy duration

2. Premium rates based on health status

3. Current risk classification

4. Rules for beneficiary designation

The correct answer is: Current risk classification

When a renewable term life insurance policy is renewed, the current risk classification is affected because the insurer reassesses the insured's health and potential risk factors at the time of renewal. This evaluation may incorporate any changes in the insured's health status or lifestyle since the initial policy was issued. If there are significant changes, it could result in the insured being placed in a different risk classification, which might lead to alterations in premium rates. In contrast, the policy duration itself typically remains the same or extends for a specified period under the terms of the original agreement upon renewal. Premium rates might change, but they are not usually based on health status in the case of renewal; rather, they are influenced by the overall risk assessment of the insured at that time. Lastly, the rules regarding beneficiary designation normally do not change purely as a result of renewing a policy, as those terms are established at the issuance of the policy and remain intact unless modified by the policyholder.