Final answer:
The most cost-effective life insurance policy to cover a 20-year-amortized $50,000 business-improvement loan for Sondra Timms is a $50,000 decreasing term policy for 20 years(option D). This policy aligns coverage with the loan balance and offers the lowest premiums.
Step-by-step explanation:
The student is seeking advice on which life insurance policy would provide adequate protection for a 20-year-amortized $50,000 business-improvement loan with the lowest premium cost for Sondra Timms, who is 27 years old. The options include a $50,000 whole life policy, a $50,000 20-pay life policy, a $50,000 level term policy for 20 years, and a $50,000 decreasing term policy for 20 years.
Among these options, the $50,000 decreasing term policy for 20 years (Option D) is typically the most cost-effective choice for covering a debt that decreases over time, such as an amortized loan. As the outstanding loan balance declines, the amount of insurance coverage decreases correspondingly, which should result in lower premiums compared to policies that offer a level death benefit.
Therefore, a decreasing term policy would adequately protect Ms. Timms and provide coverage that aligns with the diminishing loan balance, ensuring that the loan is fully covered at any point during the term at the minimum premium outlay.