47. Nancy purchased a life insurance policy with a face amount of $250,000. Over a period of years, the cash value in the policy accumulates to $50,000, and the face amount of the policy has become $300,000. This is an example of a
Answer: B
This is an example of a participating whole life policy.
A participating whole life policy allows policyholders to accumulate cash value while also being eligible for dividends, which can increase the face amount of the policy over time. In Nancy's case, the policy's cash value accumulation and increase in face amount exemplify the characteristics of a participating whole life policy.
A) modified premium whole life policy.
A modified premium whole life policy typically involves lower initial premiums that increase after a certain period. While it does build cash value, the key aspect of Nancy's situation is the accumulation of dividends and increased face value, which are not features of modified premium policies.
B) participating whole life policy.
This option correctly identifies Nancy's situation. A participating whole life policy not only builds cash value but also pays dividends to policyholders, which can enhance the face amount over time. Nancy's policy, with an increased face amount from $250,000 to $300,000 and a cash value of $50,000, aligns perfectly with the definition of a participating policy.
C) limited pay life insurance policy.
A limited pay life insurance policy requires premiums to be paid for a limited period, after which the policy is considered paid-up. While these policies can accumulate cash value, they do not necessarily involve the increase in face amount through dividends, as seen in Nancy's case.
D) universal life policy.
A universal life policy offers flexible premiums and death benefits, along with cash value accumulation. However, this type of policy does not typically provide dividends that increase the face amount, which is a crucial feature of Nancy's participating whole life policy.
Conclusion
The correct classification of Nancy's life insurance policy as a participating whole life policy is evident due to its cash value growth and increased face amount through dividends. None of the other options adequately capture the unique features that define her policy, making them incorrect in this context.