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, Bill can adjust the face value of his whole life policy in accordance with inflation, which in this case is indicated by a 3% increase in the consumer price index. Therefore, 3% of the $200,000 face value amounts to an increase of $6,000.
A) $300
This option represents a significantly lower increase than what is warranted by the 3% rise in the consumer price index. Calculating 3% of $200,000 results in a much higher figure, making this choice incorrect.
B) $600
While this option is higher than $300, it still does not reflect the correct increase based on the 3% inflation adjustment. The calculation of 3% of $200,000 yields a value that far exceeds this amount, thus rendering it incorrect.
C) $3,000
This choice is closer to the correct value but still falls short. A 3% increase on a $200,000 policy is $6,000, which indicates that this option does not represent the full adjustment allowed by the cost-of-living rider.
D) $6,000
This option accurately reflects the 3% increase in the face value of Bill's policy, calculated from the original $200,000. It aligns perfectly with the provisions of the cost-of-living rider, making it the correct choice.
Conclusion
The correct answer is $6,000, as it is the precise amount that Bill can increase the face value of his policy due to the 3% rise in the consumer price index, as stipulated by the cost-of-living rider. All other options fail to account for the full increase allowed, demonstrating that they do not meet the necessary calculation based on the policy's face value.