Question

Paul owns a $500,000 whole life insurance contract. He takes a $10,000 loan against the cash value. His premium is $6,000, which he pays annually on September 10th. He is tragically killed on September 12th while on his way to the post office to mail his overdue premium. The loan also has an accumulated interest amount of $500. How much benefit, if any, will be paid to his beneficiary?

Answer 1

The benefit paid to Paul's beneficiary will be $489,500.

Step-by-step explanation:

To determine the benefit that will be paid to Paul's beneficiary, we need to consider the outstanding loan amount and the accumulated interest. Whole life insurance policies typically have a provision that deducts any outstanding loans and accumulated interest from the death benefit.

In this case, Paul took a $10,000 loan against the cash value of his $500,000 whole life insurance contract. Since he passed away before repaying the loan, the outstanding loan amount of $10,000 and the accumulated interest of $500 need to be deducted from the death benefit.

Therefore, the benefit paid to Paul's beneficiary will be $(500,000 - 10,000 - 500) = $489,500.