Question 96

The insurer will subtract the amount of the loan and pay $45,000 to the beneficiary.

Upon Oliver's death, the life insurance policy's death benefit will be reduced by the outstanding loan amount. Therefore, the insurer will pay the beneficiary $45,000, which is the total benefit of $50,000 minus the $5,000 loan.

A) The insurer will pay the beneficiary $50,000 and then collect the $5000 loan.

This option is incorrect because the insurer does not pay the full death benefit of $50,000 when there is an outstanding loan. Instead, the loan amount is deducted from the death benefit before any payment is made to the beneficiary.

B) The insurer will not pay the death benefit until the loan has been repaid.

This statement is false as well; the insurer does not require repayment of the loan before paying the death benefit. Instead, the outstanding loan amount is simply deducted from the total death benefit.

C) The insurer will subtract the amount of the loan and pay $45,000 to the beneficiary.

This option is correct because it accurately reflects the process by which the insurer handles outstanding loans at the time of death. The death benefit of $50,000 will be reduced by the $5,000 loan, resulting in a payment of $45,000 to the beneficiary.

D) The insurer will pay the beneficiary $50,000 and continue to collect payments and interest on the loan.

This option is incorrect as it implies that the insurer pays the full death benefit despite the outstanding loan. The insurer does not continue to collect on the loan after the death benefit is paid; rather, the loan amount is deducted from the death benefit.

Conclusion

The correct answer is C, as it accurately describes the deduction of the outstanding loan from the death benefit, leading to a payment of $45,000 to the beneficiary. Options A, B, and D all misrepresent the insurer's process regarding outstanding loans and death benefits, confirming that C is the only accurate statement in this context.