AD Banker Comprehensive Practice Exam

The Life and Disability Insurance Guaranty Association provides liability benefits in the event an insurer becomes insolvent. What is the maximum liability benefit amount?

1. $100,000 for cash value on one life and $300,000 for all benefits

2. $100,000 for cash value on one life and $250,000 for all benefits

3. $50,000 for cash value on one life and $150,000 for all benefits

4. $100,000 for cash value on one life and $500,000 for all benefits

The correct answer is: $100,000 for cash value on one life and $300,000 for all benefits

The Life and Disability Insurance Guaranty Association is designed to protect policyholders in the event that an insurance company becomes insolvent, ensuring that policyholders do not lose their life insurance and certain other policy benefits. The maximum liability benefit is crucial as it sets a limit on the amount of coverage that the association will provide. In this case, the correct amount for maximum liability benefits includes a provision for cash value on one life and a separate threshold for all benefits collectively. The limit specifies that there is a coverage of $100,000 for cash value, which typically relates to the accumulated value within whole life or universal life policies, and an additional coverage of $300,000 that encompasses all other types of benefits, such as death benefits. This structure is significant as it reflects the association's efforts to balance protection for individual policyholders while maintaining sustainable coverage limits. Understanding these limits is vital for anyone engaged in life insurance planning or in the insurance industry, as it informs both policy issuance and consumer protection efforts.