Looking for the answer to the question below related to Management ?
A term life insurance policy matures:
|A) upon endowment of the contract
B) upon death of the insured
C) when the cash value equals the death benefit
D) upon the insured’s death during the term of the policy
The Correct Answer Is:
- D) upon the insured’s death during the term of the policy
A term life insurance policy is a straightforward type of life insurance that provides coverage for a specified period, known as the term. It is designed to offer financial protection to the insured’s beneficiaries in the event of the insured’s death during the term of the policy.
Let’s break down each of the options and explain why “D) upon the insured’s death during the term of the policy” is the correct answer, while the other options are not:
D) Upon the insured’s death during the term of the policy:
This is the correct answer. Term life insurance policies are characterized by their simplicity. They provide coverage for a specific period, such as 10, 20, or 30 years. If the insured person dies during the term of the policy, the insurance company pays out the death benefit to the beneficiaries.
The death benefit is a predetermined amount of money that was specified when the policy was purchased. This payment is typically tax-free and is intended to provide financial support to the insured’s loved ones in the event of their untimely death.
Now, let’s explain why the other options are not correct:
A) Upon endowment of the contract:
This option is not correct for term life insurance policies. Endowment policies are a different type of life insurance altogether. Endowment policies combine elements of life insurance and savings/investment.
They are designed to pay out a lump sum of money either upon the insured’s death or at the end of a specified period (the endowment period), whichever comes first.
In contrast, term life insurance policies do not have a savings component, and they only pay out a death benefit if the insured person dies during the term of the policy.
B) Upon death of the insured:
While it might seem similar to the correct answer, this option is not entirely accurate. It lacks the specificity of the term “during the term of the policy.” In life insurance, there are various types of policies, and the timing of the payout depends on the policy type.
Term life insurance policies, as mentioned earlier, pay out the death benefit only if the insured dies during the term of the policy. Other types of life insurance, such as whole life or universal life, provide coverage for the insured’s entire lifetime and will pay out the death benefit whenever the insured passes away.
C) When the cash value equals the death benefit:
This option is not correct for term life insurance policies because term policies do not accumulate cash value. Cash value is a feature of permanent life insurance policies like whole life and universal life. In these policies, a portion of the premiums paid by the policyholder is invested and grows over time.
When the cash value equals the death benefit, it means that the policy has built up enough value to cover the death benefit, and in some cases, the policy can be cashed out or surrendered for the accumulated cash value.
Term life insurance policies do not have this cash value component, making this option irrelevant for term life insurance.
In summary, a term life insurance policy matures and pays out the death benefit only when the insured person passes away during the term of the policy. It does not have a cash value component, and it is distinct from endowment policies and other types of life insurance that may have different payout conditions.
It’s essential for individuals to understand the specific terms and conditions of their life insurance policies to ensure they have the right coverage for their needs and objectives.
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