Final answer:
C should purchase term life insurance, which is short-term, less expensive, and provides a level of death benefit. Term life insurance offers coverage for a specified period without the added costs of a cash-value component, making it suitable for temporary coverage needs like those of a college student.
Step-by-step explanation:
If C, a college student, is looking for a short-term, inexpensive, temporary policy with a level death benefit, the best option would be to purchase term life insurance. Term life insurance is designed to provide coverage for a specific period of time, such as 10, 20, or 30 years, and is typically less expensive than permanent life insurance policies such as cash-value (whole) life insurance, which includes a death benefit as well as a cash value component. A term policy would offer the level of death benefit C is looking for, without the added costs associated with policies that include an investment or savings aspect. The premiums for term insurance are solely for the cost of insurance, making it a more cost-effective choice for someone who requires coverage for only a short duration.
For example, the 50-year-old men in the described scenario who require life insurance can obtain an actuarially fair premium based on their life expectancy and risk factors such as a family history of cancer. In this example, the separate premiums would reflect the varying risks presented by each group, relating to their chances of dying within the next year. Purchasing term life insurance could provide a payout of $100,000 to the estate of anyone who dies within the term of the policy, serving as a temporary financial safety net.
It's also important to note that if C only needs coverage while completing college, a short-term policy lasting for that specific time frame could be adjusted to align with C's temporary needs, maintaining its cost-effectiveness. This would provide peace of mind for the temporary period without the long-term financial commitment of a whole life policy.