37. Mary has a 30-year $90,000 decreasing term life insurance policy. Which of the following is the MOST likely amount that the policy would pay if Mary dies in the 20th year?
Answer: A
The policy would likely pay $30,000 if Mary dies in the 20th year.
A decreasing term life insurance policy pays out a death benefit that decreases over the term of the policy. Since Mary's policy is a 30-year decreasing term, the amount she would receive would be significantly reduced by the 20th year.
A) $30,000
This option is correct because, in a decreasing term life insurance policy, the death benefit reduces typically at a set rate over the duration of the policy. By the 20th year, it is likely that the payout would have decreased to approximately $30,000 based on the original amount of $90,000.
B) $45,000
This option is incorrect. A payout of $45,000 does not align with the typical reduction schedule of a decreasing term life insurance policy. By the 20th year, the death benefit would be lower than this amount based on the decreasing structure.
C) $60,000
This option is also incorrect. Similar to option B, $60,000 would still be too high for a payout at the 20-year mark in a decreasing term policy. The decrease would have progressed further to yield a lower amount.
D) $90,000
This option is incorrect as well. A payout of $90,000 would only be the case if Mary died in the first year of the policy. By the 20th year, the benefit would have decreased significantly below this amount.
Conclusion
The correct answer is $30,000, as it accurately reflects the decreasing nature of the term life insurance policy by the 20th year. All other options are too high and do not take into account the scheduled reduction in benefit that characterizes this type of insurance.