73. 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?
Answer: D
Bill may increase the face value of his policy by $6,000.
With a cost-of-living rider and a 3% increase in the consumer price index, Bill can adjust the face value of his whole life policy by 3% of $200,000, which amounts to $6,000.
A) $300
This option is incorrect because a 3% increase of the face value of $200,000 is not $300. Instead, it is significantly higher, as the calculation shows that it should be $6,000.
B) $600
Option B is also incorrect. A 3% increase on $200,000 does not equate to $600; rather, it is a fraction of the total value that fails to reflect the actual adjustment allowed by the cost-of-living rider.
C) $3,000
This choice is incorrect as well. A 3% increase on the face value of $200,000 is much greater than $3,000. The correct calculation yields $6,000, indicating that this option does not represent the correct adjustment.
D) $6,000
This option is correct. A 3% increase on the face value of $200,000 equals $6,000, which is the precise adjustment Bill is entitled to make under the cost-of-living rider.
Conclusion
The correct answer is $6,000 because it accurately reflects a 3% increase on the original face value of $200,000. All other options underestimate the increase based on the provided percentage, demonstrating a misunderstanding of how the cost-of-living rider functions in conjunction with the inflation rate.