AD Banker Comprehensive Practice Exam

What is the classification of a joint life policy that pays upon the death of the second insured?

1. Variable life policy

2. Level term policy

3. Survivorship or second-to-die policy

4. Reduced paid up policy

The correct answer is: Survivorship or second-to-die policy

A joint life policy that pays upon the death of the second insured is classified as a survivorship or second-to-die policy. This type of policy is specifically designed to provide death benefits only after both insured individuals have passed away. It is often utilized in estate planning and for financial purposes, such as providing funds to pay estate taxes or passing wealth to the next generation. In a survivorship policy, the premiums are generally lower compared to purchasing two individual life policies, because the insurer only has to pay out upon the death of the second insured, thereby reducing the risk for the insurance company. This reflects a strategic option for couples or business partners who want to ensure that their beneficiaries receive a payout after both of their deaths, enabling financial planning for future generations. Other types of policies mentioned do not serve the same purpose as a survivorship policy. For instance, a variable life policy involves investment components and provides living benefits, while a level term policy pays out only for a specified term upon the death of the insured. A reduced paid-up policy refers to a status of a whole life policy where the policyholder stops paying premiums but maintains a reduced death benefit, which is not related to joint insured lives. Therefore, survivorship or second-to-die is the