Question 17

Ernest’s death benefit larger if dies in first 5 years is NOT true.

In the case of term life insurance, Frank's policy would pay a death benefit equal to the face amount if he dies within the first five years, while Ernest's whole life policy provides a guaranteed death benefit regardless of when he passes away. Therefore, it is not accurate to say that Ernest’s death benefit would be larger if he dies in the first five years.

A) Ernest’s death benefit larger if dies in first 5 years

This statement is incorrect because, in fact, Frank's term life policy will pay out its death benefit if he dies in the first five years, while Ernest's whole life policy also guarantees a death benefit regardless of the timing. Thus, the death benefit under Frank's policy during the first five years would be equal to the death benefit of Ernest's policy, making this statement false.

B) Frank can use cash value for reduced paid-up whole life

This statement is true because Frank’s term policy does not accumulate cash value, so he cannot convert it to a reduced paid-up whole life policy. This option is misleading but technically true regarding the characteristics of whole life insurance, indicating that Frank’s policy cannot be converted in the manner described.

C) Ernest’s policy develops larger cash value

This statement is true as well. Whole life policies, like Ernest's, typically build cash value over time, which can be borrowed against or withdrawn. In contrast, Frank's term policy does not accumulate any cash value, making this statement accurate.

D) Ernest’s premium stays same, Frank’s increases

This statement is true. Whole life insurance premiums remain level throughout the life of the policy, while term premiums can increase upon renewal after the initial term expires. Hence, this statement accurately reflects the nature of both policies.

Conclusion

In summary, the statement that "Ernest’s death benefit larger if dies in first 5 years" is definitively incorrect, as both policies provide substantial death benefits depending on the circumstances, but Frank's term policy does not diminish in value during that period. The other options are true and accurately describe the characteristics of the insurance policies held by Frank and Ernest.