Advanced Diploma of Financial Planning (ADFP) Practice Test 2026 - Free Financial Planning Questions and Study Guide

The statement about net premiums for term insurance being constant over time is indeed incorrect. In term insurance, while the premiums may appear to be level for a specific period, such as the initial term of coverage, they can actually increase when the term expires or when the policyholder renews the coverage for a new term. This is due to the natural increase in mortality risk as individuals age, which affects the pricing of term life insurance. Thus, while initial premiums may seem constant, they are not effectively constant if you consider the long-term perspective of renewing or purchasing additional coverage later in life.

Understanding the nuances of term insurance is critical as it plays a vital role in financial planning, allowing individuals to assess their needs for temporary versus lifelong coverage and what the associated costs may be over time.