96. Oliver has a life insurance policy with a $50,000 death benefit. At his death, there is a $5000 policy loan outstanding. Which of the following statement is CORRECT?
Answer: C
The insurer will subtract the amount of the loan and pay $45,000 to the beneficiary.
Upon Oliver's death, the insurer will deduct the outstanding policy loan of $5,000 from the $50,000 death benefit, resulting in a total payment of $45,000 to the beneficiary.
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 if there is an outstanding loan. Instead, the loan amount is deducted from the death benefit before it is paid to the beneficiary.
B) The insurer will not pay the death benefit until the loan has been repaid.
This statement is false as the insurer does not require the loan to be repaid prior to paying the death benefit. The insurer simply deducts the loan amount from the death benefit and pays the remaining balance to the beneficiary.
C) The insurer will subtract the amount of the loan and pay $45,000 to the beneficiary.
This option is correct because the insurer calculates the death benefit by deducting the outstanding loan of $5,000 from the total benefit of $50,000, leading to 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 since the insurer cannot pay the full death benefit while there is an outstanding loan. The loan amount must be deducted from the total benefit before any payment is made to the beneficiary.
Conclusion
The correct answer is C, as it accurately describes the process of how the insurer handles outstanding loans against a life insurance policy upon the policyholder's death. Options A, B, and D provide incorrect scenarios that misrepresent the insurer's obligations regarding outstanding loans, confirming that C is the only accurate statement in this context.