Management Notes

Reference Notes for Management

K is shopping for a permanent life insurance policy that will offer her the MOST protection per dollar of annual premium. Which of these policies best fits her needs?

K is shopping for a permanent life insurance policy that will offer her the MOST protection per dollar of annual premium. Which of these policies best fits her needs?


  1. Endowment
  2. Straight Life
  3. 10-Year Renewable Term
  4. Joint Life

The Correct Answer Is:

b. Straight Life

Explanation of why the correct answer is b. Straight Life:

For K, who is seeking the maximum protection for her premium dollars in a permanent life insurance policy, the best option is a Straight Life policy. This type of policy, also known as whole life insurance, provides coverage for the entire lifetime of the insured. It also has a savings or cash value component that grows over time.

Here’s why a Straight Life policy is the most suitable choice for K:

  • Lifetime Coverage: Straight Life insurance guarantees coverage for K’s entire lifetime, as long as she pays the premiums. This offers peace of mind, as there’s no need to worry about renewing or re-qualifying for coverage in the future.
  • Level Premiums: With a Straight Life policy, the premium amount remains constant throughout K’s life. This is advantageous because it provides stability and predictability in her financial planning. Other types of policies, like renewable term, may have increasing premiums with age.
  • Cash Value Growth: A portion of the premium paid for a Straight Life policy goes into a cash value account. This cash value grows over time and can be accessed by the policyholder through loans or withdrawals. It also, provides a savings component, which can be valuable for various financial needs or emergencies.
  • Guaranteed Death Benefit: The policy guarantees a specific death benefit to K’s beneficiaries when she passes away. This ensures that her loved ones will receive a payout regardless of when she passes away, as long as the premiums are paid.
  • Dividend Potential: Some Straight Life policies may pay dividends, which can be used to increase the cash value, purchase additional coverage, or receive as cash. While dividends are not guaranteed, they can be an additional benefit.

Explanation of why the other options are not correct:

a) Endowment:

Endowment policies provide both a death benefit and a savings component, but they have a specific maturity date. If the insured survives until the maturity date, they receive the face amount of the policy. However, if the insured dies before the maturity date, the face amount is paid to the beneficiary.

Endowment policies typically have higher premiums compared to Straight Life policies for the same face amount. For K’s specific needs of maximizing protection per premium dollar, an endowment policy may not be the most cost-effective option.

c) 10-Year Renewable Term:

Term policies provide coverage for a specified term (in this case, 10 years) and do not accumulate cash value. While they are initially more affordable than permanent policies, the premiums typically increase significantly upon renewal.

For K’s goal of long-term protection, a term policy may not be the best choice as it offers coverage only for a fixed period, and renewal premiums can become prohibitively expensive.

d) Joint Life:

Joint Life insurance covers two individuals under one policy, and the death benefit is paid out upon the first death. This type of policy is often used for couples. However, if K is shopping for an insurance policy for herself, a Joint Life policy is not applicable to her individual needs.

In conclusion, based on K’s objective of obtaining the most protection per dollar of annual premium, the Straight Life policy is the most suitable option. It provides lifetime coverage, level premiums, cash value growth, and a guaranteed death benefit, making it a comprehensive and cost-effective choice for her.

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