Question

Lin and Joe have way too much debt. It has become a huge burden for them. Joe dies in a single car accident 6 months after buying a $500,000 life insurance policy. Lin insurance is able to prove that his death was a suicide, how much will Lin be obligated to pay?

Select one:

a. the policy’s cash value.

b. the present value of the expected proceeds.

c. nothing, the policy is void.

d. the face value of the policy.

e. the premiums paid for the policy.

Answer 1

c. nothing, the policy is void.

Since the cause of death is suicide which occurs within 1 year of taking the insurance policy, the policy is void. The beneficiary will not get anything out of the policy and will not have to pay anything either.

The policy's cash value is the amount received if the policy is discontinued.

The present value of the expected proceeds is a way of valuing the policy.

The face value of the policy is the amount payable by thecompany on death of the insured.

The premiums paid for the policy are the fees paid to keep the policy active which is not applicable in this case since the insured is no more.