Question

Sarah pays the premiums on a life insurance policy. According to the terms of the policy, if her wife Jessica passes away, their son Parker will receive a death benefit. Based on this arrangement, Jessica is the:

a. insured
b. policyholder
c. beneficiary
d. dependant

Answer 1

Jessica is the insured person on the life insurance policy held by policyholder Sarah for the benefit of their son, Parker, who is listed as the beneficiary.

Step-by-step explanation:

In the described situation, Jessica is the insured individual in the life insurance policy. Sarah, who pays the premiums, is the policyholder, and their son Parker, who would receive the death benefit if Jessica passes away, is referred to as the beneficiary. The insured is the person whose life is covered by the policy, the policyholder is the one who maintains the policy by paying the premiums, and the beneficiary is the person entitled to receive the policy's proceeds upon the insured's passing. A dependant would usually be someone who relies on the insured for financial support, but that term is not applicable in specifying Jessica's role within this policy. Understanding a life insurance company's functioning is essential when considering policies; these companies collect premiums and may offer loans based on policies' value, which must be repaid with interest.

Answer 2

Jessica is the insured individual on the life insurance policy. Sarah is the policyholder as she maintains the policy, and their son Parker is the beneficiary, who will receive the death benefit if Jessica passes away.

Step-by-step explanation:

In the scenario provided, Jessica is considered the insured individual in the life insurance policy. The term 'insured' refers to the person upon whose death the policy will pay out the death benefit. Sarah, who pays the premiums, is known as the policyholder because she owns the policy and is responsible for making payments to keep it active. Additionally, their son Parker is the beneficiary, meaning he is the individual designated to receive the death benefit from the life insurance policy if Jessica were to pass away. It is important for the policyholder to understand each party's role within a life insurance contract and how they are interconnected. In this context, a dependent may typically rely on the insured for financial support, but in insurance terms, Parker's designation is solely as beneficiary.

Life insurance policies serve as a financial safeguard, providing monetary stability to beneficiaries after the insured's death. With different types of insurance coverage, from health to car to life insurance, each plays a distinct role in protecting individuals against financial loss. The workings of life insurance, including premium payments, the role of insured, the policyholder, and the beneficiary are an integral part of understanding personal finance and risk management.