PSI Life Exam Practice Test

What factor might lead to a higher premium for a life insurance policy?

1. Smoking habits

2. Younger age

3. Being healthy

4. Old occupation

The correct answer is: Smoking habits

A higher premium for a life insurance policy can indeed be influenced by smoking habits. Insurance companies assess the risk associated with insuring an individual, and smoking is considered a significant risk factor. Smokers are more likely to develop health issues such as heart disease, lung cancer, and other serious conditions, which increases the likelihood of claims being made during the policyholder's lifetime. Consequently, in order to account for this increased risk, insurers typically impose higher premiums on those who smoke compared to non-smokers. The other factors provided do not lead to higher premiums in the same way. For instance, being younger generally results in lower premiums since younger individuals are statistically less likely to experience health problems that could lead to death. Being healthy also leads to lower premiums, as these individuals present a reduced risk to the insurer. An old occupation could increase premiums, but only if it is related to hazardous work; however, this option does not universally apply as smoking does. Thus, smoking habits stand out as a clear factor that contributes to increased insurance premiums.