95. 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 the increase in the consumer price index. Given a 3% increase in the consumer price index, this translates to an increase of $6,000 on his $200,000 policy.
A) $300
This option is incorrect because a 3% increase on a $200,000 policy would yield a much higher adjustment than $300. The calculation for a 3% increase is 0.03 x 200,000, which is significantly greater.
B) $600
While $600 seems plausible, it still does not accurately reflect a 3% increase on a $200,000 policy. The correct calculation shows that the increase should be $6,000, making this option incorrect.
C) $3,000
This option is also incorrect as it underestimates the impact of the 3% increase on the $200,000 policy. The calculation clearly shows that the correct increase is $6,000, not $3,000.
D) $6,000
This option is correct because it properly reflects a 3% increase on the $200,000 face value of the policy. The calculation (0.03 x 200,000) confirms that Bill can increase his policy by $6,000.
Conclusion
The correct answer, $6,000, accurately represents the adjustment Bill can make to his policy under the cost-of-living rider in response to a 3% increase in the consumer price index. All other options fail to meet the mathematical requirements of the given percentage increase, making them incorrect.