Tennessee Insurance Practice Exam

What is the consideration given by an insurer in the Consideration clause of a life policy?

1. Payment of premiums

2. Promise to pay a death benefit to a named beneficiary

3. Provision of a loan

4. Issuance of the policy document

The correct answer is: Promise to pay a death benefit to a named beneficiary

In the Consideration clause of a life insurance policy, the insurer's consideration is the promise to pay a death benefit to a named beneficiary. This promise signifies the insurer's commitment to fulfill its obligations under the terms of the policy in exchange for the premiums paid by the policyholder. The consideration must be something of value exchanged between the insurer and the insured. While payment of premiums is the consideration provided by the policyholder, the insurer's specific consideration is the promise to pay out a specified amount upon the occurrence of the insured event, such as the death of the insured. This foundational aspect of the contract establishes the insurer's responsibility and reinforces the binding nature of the agreement, ensuring that beneficiaries are protected financially as intended. The other options, while relevant components of life insurance policies, do not represent the primary consideration given by the insurer. The provision of a loan and the issuance of the policy document are important aspects of the policy but do not encapsulate the insurer's promise, which is key to understanding the consideration clause in the life insurance context.