In looking through a life insurance contract, an insured finds a table stating that in the 20th policy year, the cash value is $480 per $1,000 of Death benefit. What type of policy did the insured purchase?

Rationale

Straight Life

Straight Life policies, also known as whole life insurance, provide coverage for the entire life of the insured. These policies accumulate cash value over time, typically following a set schedule detailed in the policy contract.

A (Straight Life) CORRECT

In a Straight Life policy, the cash value grows steadily over time, with a guaranteed rate of accumulation. The specific table mentioned in the question outlines how the cash value correlates with the Death benefit in the 20th year of the policy. This steady growth aligns with the characteristics of Straight Life insurance.

B (Universal Life) YOUR ANSWER

Universal Life policies offer more flexibility in premium payments and death benefits than Straight Life policies. They typically do not have a fixed cash value growth structure tied to the Death benefit, making this choice incorrect in the context of the question.

C (Variable Life) YOUR ANSWER

Variable Life policies allow the insured to allocate their premiums among various investment options, impacting the cash value based on the performance of these investments. The fixed cash value per Death benefit ratio described in the question does not align with the variable nature of Variable Life policies.

D (Increasing Term) YOUR ANSWER

Increasing Term policies provide a Death benefit that rises over time while keeping the premium constant. The cash value structure mentioned in the question, where it is tied to the Death benefit in a fixed ratio, does not correspond to the characteristics of an Increasing Term policy.

Conclusion

The presence of a specific table indicating the cash value in relation to the Death benefit in the 20th policy year points towards a Straight Life policy. This type of policy guarantees a predetermined cash value accumulation pattern, reinforcing the long-term coverage and savings aspects associated with whole life insurance.

In looking through a life insurance contract, an insured finds a table stating that in the 20th policy year, the cash value is $480 per $1,000 of Death benefit. What type of policy did the insured purchase?

Straight Life

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