Question

Growing cash values will replace a corresponding amount of pure death protection until the _________is reached. Once policy cash values reach the corridor, the death benefit will __________ to keep the policy tax-sheltered.

Answer 1

Cash-value life insurance allows the cash value to replace death protection until a certain point, known as the corridor. Once the cash value reaches the corridor, the death benefit decreases to maintain the tax-sheltered status.

Step-by-step explanation:

Cash-value (whole) life insurance has a death benefit and a cash value. The cash value grows over time and can be used by the policyholder. As the cash value grows, it can replace a corresponding amount of pure death protection until the corridor is reached.Once the policy cash values reach the corridor, the death benefit will decrease to keep the policy tax-sheltered. This is because the cash value is considered an investment component of the policy and the decreased death benefit is used to maintain the tax advantages of the policy.For example, let's say a policy has a corridor of $10,000. When the cash value reaches $10,000, the death benefit will decrease accordingly. If the cash value continues to grow beyond the corridor, the death benefit will keep decreasing to keep the policy tax-sheltered.