K pays on a $20,000 Year-Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?

 Options:

A) Return of premiums paid B) Cash value plus interest C) $20,000 death benefit D) Face amount plus interest

The Correct Answer Is:

C) $20,000 death benefit

Correct Answer Explanation:

➦ The correct answer to this question is C) $20,000 death benefit. Let’s delve into a detailed explanation of why this answer is correct and why the other options are not.

C) $20,000 Death Benefit (Correct Answer):

➦ In a Year-Endowment policy, the insured individual pays premiums for a specified period, in this case, 10 years.

➦ If the insured individual dies during the policy term, the insurance company is obligated to pay the death benefit, which is the face value of the policy.

➦ In this scenario, the face amount of the policy is $20,000, and since the insured individual, K, has passed away due to an automobile accident, the insurance company will pay the beneficiary the full $20,000 death benefit.

➦ This is the primary purpose of life insurance—to provide a financial payout to the beneficiary in the event of the insured’s death.

Why the Other Options are Incorrect?

A) Return of Premiums Paid:

➦ This option suggests that the insurance company would refund the premiums that the insured individual, K, has paid over the 10-year period.

➦ However, a Year-Endowment policy typically does not guarantee a return of premiums paid.

➦ Instead, it is designed to provide a death benefit to the beneficiary if the insured individual passes away during the policy term.

➦ While some life insurance policies may offer a return of premiums with certain riders or conditions, this is not a standard feature of a Year-Endowment policy.

B) Cash Value Plus Interest:

➦ A Year-Endowment policy may accumulate a cash value over time, depending on the terms of the policy. However, the cash value is not typically paid out upon the insured’s death.

➦ Instead, the cash value serves as a savings component within the policy that the insured can access during their lifetime, either by surrendering the policy or taking out a loan against it.

➦ In the event of the insured’s death, the beneficiary is entitled to the death benefit, which is the face amount of the policy ($20,000 in this case), not the cash value plus interest.

D) Face Amount Plus Interest:

➦ This option suggests that the beneficiary would receive the face amount of the policy plus interest.

➦ While some insurance policies may offer interest on the death benefit, it is not a standard feature of a Year-Endowment policy.

➦ Typically, the death benefit is a fixed amount specified in the policy, and it is paid out to the beneficiary upon the insured’s death.

➦ The interest may be relevant in certain types of investment-based life insurance policies, such as universal life or variable life insurance, but it is not a feature of a Year-Endowment policy.

➦ In summary, the correct answer to this scenario is C) $20,000 death benefit because a Year-Endowment policy is specifically designed to provide a predetermined death benefit to the beneficiary in the event of the insured individual’s death during the policy term.

➦ This benefit is not contingent on the return of premiums, the cash value, or interest. It is a fixed payout that offers financial protection to the beneficiary when the insured passes away.

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