Texas General Lines — Life, Accident, Health and HMOLife InsuranceHard
A life insurance policy has a face amount of $500,000. The policyowner made total premium payments of $80,000. At the time of the insured's death, there was an outstanding policy loan of $15,000, plus accrued interest of $500. The beneficiary is due to receive the death benefit. What is the net amount payable to the beneficiary?
- A$500,000
- B$484,500
- C$485,000
- D$484,950
Show answer & explanationAnswer & explanation
Correct answer: B. $484,500
When a policy loan is outstanding at the time of the insured's death, the loan amount plus any accrued and unpaid interest is deducted from the death benefit before it is paid to the beneficiary. The premiums paid are not relevant to the calculation of the net death benefit.
Why the other options are wrong
- A. Incorrect. The outstanding loan and interest must be deducted.
- C. Incorrect. This only deducts the principal loan amount, not the accrued interest.
- D. Incorrect calculation.
Policy Loan Repayment at Death
If a policy loan is outstanding at the time of the insured's death, the loan amount plus any accrued and unpaid interest is deducted from the death benefit.
- Outstanding loans reduce the net death benefit.
- Both principal loan and accrued interest are deducted.
- Beneficiary receives the net amount.
Memory trick: Death Benefit = Face - Loan - Interest