AD Banker Comprehensive Practice Exam

Which statement accurately describes a survivorship life policy?

1. It pays a death benefit on the first individual who dies

2. It is designed for individual policies with high premiums

3. It provides benefits after the second insured passes away

4. It is not convertible to a whole life policy

The correct answer is: It provides benefits after the second insured passes away

A survivorship life policy, also known as a second-to-die policy, is specifically structured to provide a death benefit only after the second insured person passes away. This type of policy is often utilized in estate planning because it can help beneficiaries with tax liabilities upon the death of both insured individuals, such as married couples or partners. The design of this policy allows the premiums to be lower than that of individual life policies because the risk of payout is delayed until both insured individuals have passed. This characteristic makes it particularly appealing to those looking to secure their financial legacy for heirs after both parties have died. The other options describe different types of life insurance features or inaccuracies related to the nature of survivorship policies. For instance, a policy that pays out on the first death pertains to individual term or whole life insurance, not survivorship life. Additionally, the suggestion that survivorship policies are typically associated with high premiums misrepresents their common structure and benefit. Lastly, the claim regarding convertibility doesn't apply in the context of survivorship policies, which inherently serve a different function than convertible plans.