AD Banker Comprehensive Practice Exam

Jeanne has a $100,000 whole life insurance policy that has $1,000 of dividend additions, a $6,000 outstanding loan that includes unpaid interest, and a monthly premium of $500. If she dies during the grace period, which of the following insurance settlements would be permitted?

1. $93,000

2. $92,500

3. $94,500

4. $100,000

The correct answer is: $94,500

In the context of this question, it's important to understand how the payout of a whole life insurance policy is calculated, particularly in situations involving outstanding loans and dividends. When Jeanne's policy is evaluated at the time of her death, the death benefit will reflect the total face amount of the policy minus any outstanding debts, which in this case is the $6,000 loan and any applicable unpaid interest. However, the dividends that have accumulated can be added to the death benefit. Here's how the calculations work: 1. The total face amount of the policy is $100,000. 2. The dividend additions amount to $1,000, which effectively increases the death benefit. 3. The outstanding loan of $6,000, which must be deducted from the total benefit to determine the amount payable upon Jeanne's death. When we account for these elements, the proper calculation looks like this: - Start with the face value: $100,000 - Add the dividend additions: $100,000 + $1,000 = $101,000 - Subtract the outstanding loan: $101,000 - $6,000 = $95,000 However, since the options provided do not include $95,000 and provide $94,