Life & Health Insurance Practice Exam 2026 - Free Practice Questions and Study Guide

The selected answer is accurate because longer elimination periods generally lead to lower premiums for insurance policies. The elimination period, which is the duration that must pass before benefits are payable, impacts the insurer's risk and financial exposure.

When a policyholder chooses a longer elimination period, they are essentially agreeing to wait longer before receiving benefits. This means the insurer has a lower likelihood of paying out claims in the immediate term, thus reducing the risk associated with the policy. In turn, this reduced risk allows the insurer to offer lower premiums, making policies with longer elimination periods more cost-effective for consumers.

Policyholders opting for shorter elimination periods are typically expecting benefits to be paid out sooner, which increases the insurer's potential liability in the short term. Consequently, premiums for these policies are higher, reflecting the increased risk for the insurer.

Overall, the relationship between elimination periods and premiums is an essential aspect of understanding how insurance pricing works. While other options misinterpret the dynamics of risk and cost associated with elimination periods, recognizing that longer waits translate into less immediate financial exposure for the insurer is key to grasping this concept.