Montana State Life Insurance Practice Exam

What statement must be displayed regarding life insurance cost indexes?

1. Indexes can predict future values accurately

2. Indexes are useful only for the comparison of the costs of 2 or more similar policies

3. Indexes apply to all insurance policies

4. Indexes require regular updates each year

The correct answer is: Indexes are useful only for the comparison of the costs of 2 or more similar policies

The statement indicating that indexes are useful only for the comparison of the costs of two or more similar policies is accurate because life insurance cost indexes are designed specifically for this purpose. These indexes allow consumers to compare the cost-effectiveness of different life insurance policies that have similar features, ensuring that they can make informed decisions when evaluating their options. By focusing on similar policies, the indexes provide a clearer picture of which policy offers better value, taking into account factors such as premiums, mortality charges, and cash values. This specificity is essential because life insurance policies can vary significantly in terms of structure and benefits. As a result, a cost index used for dissimilar policies might not yield a meaningful comparison, leading to potential misunderstandings or misinformed decisions. Therefore, the accurate application of cost indexes is to highlight differences in costs among comparable products, enabling consumers to make better choices tailored to their needs. The other statements do not align with the core functionality of life insurance cost indexes. For instance, they do not predict future values accurately, as they are retrospective tools focusing on current costs instead. Additionally, indexes do not apply universally to all types of insurance policies, as different products may have unique characteristics. Lastly, while it may be beneficial for indexes to be updated regularly