What does a Face Amount Plus Cash Value Policy pay upon the insured’s death?
The Correct Answer Is:
a. Face amount plus the policy’s cash value
Correct Answer Explanation: a. Face amount plus the policy’s cash value
A Face Amount Plus Cash Value Policy, commonly known as a whole life insurance policy, pays out the face amount of the policy plus the accumulated cash value upon the insured’s death. The face amount refers to the death benefit or the amount of money the insurance company promises to pay to the beneficiaries when the insured person passes away.
On the other hand, the cash value is the savings component of the policy, which grows over time as the policyholder pays premiums. This combined payout of the face amount and the cash value distinguishes whole life insurance from other types of life insurance policies.
The correct answer, “Face amount plus the policy’s cash value,” aligns with the fundamental structure of a whole life insurance policy.
Let’s delve into why the other options are not accurate:
b. Face amount plus the policy’s dividends:
Dividends in life insurance policies typically represent a portion of the insurance company’s profits that are distributed to policyholders. While dividends can be used to enhance the policy’s cash value, they do not directly contribute to the death benefit.
Therefore, the statement that the death benefit includes dividends in addition to the face amount and cash value is incorrect.
c. The greater amount of the policy’s death benefit or the cash value:
This option suggests that the payout upon the insured’s death would be whichever amount is greater between the death benefit and the cash value. However, in a Face Amount Plus Cash Value Policy, the payout comprises both the face amount (death benefit) and the cash value, not just the greater of the two.
Therefore, this statement doesn’t accurately represent how the payout is determined.
d. Face amount plus total premium paid throughout the life of the policy:
This option implies that the death benefit includes the sum of all premiums paid by the policyholder throughout the life of the policy. However, in a whole life insurance policy, the death benefit is a predetermined amount agreed upon when the policy is purchased and is independent of the total premiums paid.
While premiums contribute to the cash value, they don’t directly dictate the death benefit amount.
In summary, the Face Amount Plus Cash Value Policy pays out the face amount of the policy (death benefit) plus the accumulated cash value upon the insured’s death.
This unique characteristic distinguishes it from other life insurance policies and ensures a combined payout to the beneficiaries.