Management Notes

Management Notes

Reference Notes for Management
Y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10-year Term coverage for his wife on the same policy. Which of these policies did Y purchase?

Y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10-year Term coverage for his wife on the same policy. Which of these policies did Y purchase?

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Y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10-year Term coverage for his wife on the same policy. Which of these policies did Y purchase?

 Options:

  1. Endowment with Extended Term
  2. Endowment with a Payor Benefit
  3. Whole Life policy with an Other Insured Rider
  4. Family Income Policy

The Correct Answer Is:

  • B) Whole Life policy with an Other Insured Rider

Answer Explanation:

Y purchased a $100,000 permanent protection policy on himself and a $50,000 10-year Term coverage for his wife on the same policy. This combination of coverage indicates that Y likely purchased a Whole Life policy with an Other Insured Rider.

  • Whole Life Policy:

A Whole Life policy provides lifelong coverage as long as the premiums are paid.
It accumulates cash value over time, allowing the policyholder to access the cash value or even borrow against it.
It typically has a level premium, meaning the premium remains constant throughout the policyholder’s life.
The death benefit is paid out whenever the insured person passes away, provided the policy is in force.

  • Other Insured Rider:

An Other Insured Rider allows the policyholder to add another individual (in this case, Y’s wife) to their life insurance policy.
The rider provides a death benefit for the other insured person (Y’s wife) in addition to the primary insured (Y).
In most cases, the other insured’s coverage amount is specified separately, and it can be different from the primary insured’s coverage.
It’s important to note that the other insured typically receives the death benefit if they pass away while the rider is in force.

Now, let’s explain why the other options are not correct:

A) Endowment with Extended Term:

An Endowment policy is a type of life insurance that pays a lump sum benefit either upon the insured’s death or at the end of a specified term, whichever comes first.
The Endowment policy has a maturity date, and if the policyholder survives to that date, they receive the policy’s face amount.

Extended Term insurance is a feature of some policies where, if the policyholder does not collect the endowment amount, the policy is automatically converted into a term insurance policy for a specified period.
Y’s purchase does not fit the description of an endowment policy, as he did not mention a specific maturity date or a lump-sum payout at a specific time.

C) Whole Life Policy with an Other Insured Rider:

This is the correct answer, as explained above. Y likely purchased a Whole Life policy with an Other Insured Rider, providing lifelong coverage for himself and additional coverage for his wife.

D) Family Income Policy:

A Family Income Policy is a type of life insurance that provides a regular income to the beneficiaries instead of a lump-sum payout in the event of the insured person’s death.
The income payments typically continue for a specified period, such as 10, 20, or 30 years.
Y’s purchase does not align with a Family Income Policy, as he mentioned specific coverage amounts ($100,000 for himself and $50,000 for his wife) rather than income payments.

In summary,

The key to identifying Y’s purchase is understanding the nature of the coverage he obtained. A Whole Life policy with an Other Insured Rider is the most suitable option for Y’s situation because it provides permanent protection for him and additional coverage for his wife, aligning with the specified coverage amounts and the intention to provide lifelong security.

Smirti
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