P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20 year period. What type of policy should P purchase?
The Correct Answer Is:
b. Family Maintenance policy
Correct Answer Explanation: b. Family Maintenance policy
P should purchase a Family Maintenance policy to meet his specific needs. A Family Maintenance policy is designed to provide a regular income to the beneficiaries after the policyholder’s death, ensuring financial support over a specified period.
In P’s case, he is looking for a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years and a lump sum of $20,000 at the end of that period.
The Family Maintenance policy aligns perfectly with P’s requirements. It offers a steady monthly income, addressing the long-term financial needs of the beneficiaries. Moreover, the lump sum amount at the end of the 20-year period provides an additional financial cushion.
This policy structure ensures that P’s beneficiaries receive consistent support and a lump sum amount to cover any unforeseen expenses or major financial goals.
Now, let’s delve into why the other options are not the most suitable choices for P’s needs:
a. Family Benefit policy:
A Family Benefit policy typically pays out a lump sum amount upon the policyholder’s death. However, it doesn’t provide the structured monthly income that P desires for his beneficiaries. Without a regular income stream, this policy might not adequately support the ongoing financial needs of P’s beneficiaries over the 20-year period.
P’s objective is to ensure financial stability for his beneficiaries for 20 years after his passing. A Family Benefit policy, focused solely on a one-time lump sum, doesn’t align with this extended timeframe of consistent financial support.
c. Family Income policy:
While a Family Income policy does offer regular income to the beneficiaries, it might not include the lump sum payment of $20,000 that P desires after the 20-year period. This policy structure prioritizes ongoing payments without providing a concluding lump sum, which is an essential component of P’s financial plan.
Family Income policies often emphasize regular payments without offering much flexibility in terms of a combined approach that includes both periodic income and a lump sum at the policy’s end.
d. Family Survivor policy:
A Family Survivor policy generally aims to provide financial assistance to surviving family members after the policyholder’s death. However, it doesn’t specify structured monthly income for a defined period after P’s passing, which is a critical aspect of P’s desired policy.
Similar to the other options, a Family Survivor policy might overlook the provision of a lump sum amount at the end of the 20-year period. This absence of a final lump sum could hinder the fulfillment of long-term financial goals or contingencies that P wishes to address.
In essence, while each policy type offers its own set of benefits, none of them comprehensively align with P’s specific requirements of providing a structured monthly income for 20 years after his passing, coupled with a lump sum amount at the end of that period.
The Family Maintenance policy remains the most suitable choice due to its ability to fulfill both aspects of P’s financial planning, ensuring consistent support and a concluding lump sum for his beneficiaries.