Question

Terry Johnson purchased a life insurance policy twenty-five years ago. If the policy states that the cash value will be $420 per $1,000 of coverage in the twenty-third year, what type of policy did Terry buy?

A. Level premium annuity
B. Variable life
C. Convertible term life
D. Whole life

Answer 1

Terry Johnson bought a Whole life insurance policy, which includes a cash value component that accumulates over time and is not typical of term life policies.

Step-by-step explanation:

If Terry Johnson purchased a life insurance policy twenty-five years ago and the policy states that the cash value will be $420 per $1,000 of coverage in the twenty-third year, the type of policy Terry bought is D. Whole life. Whole life insurance policies have a death benefit and also accumulate a cash value over time, which the policyholder can use. In this case, the cash value feature is indicative of whole life insurance, as term life policies do not typically accumulate cash value and convertible term life policies are term policies that provide the option to convert to whole life or permanent insurance without a medical exam.