Mary has a 30-year $90,000 decreasing term life insurance policy. Which of the following is the MOST likely amount that the policy would pay if Mary dies in the 20th year?

Rationale

$30,000

In a decreasing term life insurance policy, the coverage amount reduces over time. Given that Mary has a 30-year policy for $90,000, the payout decreases annually, leading to a total benefit of $30,000 if she passes away in the 20th year.

A ($30,000) CORRECT

This is the correct answer as the policy decreases evenly over the 30 years. By the 20th year, two-thirds of the term has elapsed, meaning two-thirds of the coverage has decreased. Therefore, the remaining amount would be $90,000 - ($90,000/30 years * 20 years) = $30,000.

B ($45,000) YOUR ANSWER

This amount does not reflect the correct calculation of the decreasing term policy. By the 20th year, the payout is already substantially lower than $45,000, as the amount decreases by $3,000 each year for 30 years. Thus, it cannot be the payout amount at this time.

C ($60,000) YOUR ANSWER

Similar to option B, $60,000 is not a feasible payout for the 20th year. The policy would have decreased to a much lower amount by that time, making this choice incorrect. The decreasing nature of the policy means that the payout is significantly less than this value.

D ($90,000) YOUR ANSWER

This choice reflects the initial coverage amount, which is not applicable in a decreasing term life insurance policy. By the 20th year, the amount would have decreased considerably, and thus, it cannot be the payout if Mary were to die during this time.

Conclusion

In summary, Mary’s decreasing term life insurance policy will pay out $30,000 if she dies in the 20th year, as the coverage diminishes steadily over the policy's duration. The other options do not accurately reflect the structure of a decreasing term policy, which systematically reduces the payout amount annually. Understanding the mechanics of such policies is crucial for determining potential benefits at various points during the term.

Mary has a 30-year $90,000 decreasing term life insurance policy. Which of the following is the MOST likely amount that the policy would pay if Mary dies in the 20th year?

$30,000

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