Bill has a whole life policy with a face value of $200,000 and a cost-of-living rider. If the consumer price index has gone up 3%, how much may Bill increase the face value of his policy?

Rationale

Bill may increase the face value of his policy by $6,000.

A cost-of-living rider allows for adjustments to the face value of a whole life policy based on inflation, typically tied to the consumer price index (CPI). With a 3% increase in the CPI, Bill can raise the face value of his $200,000 policy by 3% of that amount, resulting in an increase of $6,000.

A ($300) YOUR ANSWER

This option represents only 0.15% of the original face value of $200,000, which does not align with the 3% increase indicated by the cost-of-living rider. Therefore, this amount is far too low to reflect the adjustment allowed by the rider.

B ($600) YOUR ANSWER

This option corresponds to a 0.3% increase of the original face value. Like option A, this is significantly less than the 3% increase that Bill is entitled to under the cost-of-living rider, thus making it an incorrect choice.

C ($3,000) YOUR ANSWER

This option calculates to a 1.5% increase of the original face value. While it is a larger amount than the previous options, it still falls short of the full 3% increase that Bill can apply to his policy, making this choice incorrect as well.

D ($6,000) CORRECT

This option accurately reflects a 3% increase of the original face value of $200,000, which is calculated as follows: $200,000 * 0.03 = $6,000. This is the correct adjustment Bill can make due to the cost-of-living rider.

Conclusion

In summary, Bill can increase the face value of his whole life policy by $6,000 due to the 3% rise in the consumer price index. The other options miscalculate the percentage increase allowed by the cost-of-living rider, confirming that $6,000 is the only correct answer. This adjustment helps ensure that the policy's value keeps pace with inflation, protecting Bill's investment over time.

Bill has a whole life policy with a face value of $200,000 and a cost-of-living rider. If the consumer price index has gone up 3%, how much may Bill increase the face value of his policy?

Bill may increase the face value of his policy by $6,000.

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