Which statement concerning an adjustable life insurance policy is FALSE? Cash surrender is possible Evidence of insurability is required when there is a change in premium Combines term and permanent insurance into a single plan An extra premium paid is allowable
The Correct Answer and Explanation is :
The FALSE statement concerning an adjustable life insurance policy is:
“Evidence of insurability is required when there is a change in premium.”
Explanation:
Adjustable life insurance policies are a type of permanent life insurance that combine flexible features, allowing policyholders to adjust various elements of their coverage, such as premiums, death benefits, and cash value. These features make them adaptable to changes in the policyholder’s needs over time.
Let’s break down the key statements:
- Cash surrender is possible: This statement is TRUE. One of the features of adjustable life insurance is that it builds cash value over time. The policyholder can access this cash value through withdrawals, loans, or even surrendering the policy for its cash value. If the policyholder decides to stop paying premiums and cancels the policy, they may receive the accumulated cash value, minus any outstanding loans or fees.
- Evidence of insurability is required when there is a change in premium: This statement is FALSE. In an adjustable life insurance policy, changes to the premium (such as increasing or decreasing the amount paid) do not generally require evidence of insurability, provided the insured is not seeking a change that would increase the death benefit. The flexibility of the policy allows the policyholder to adjust premium payments within certain limits without needing to prove their health status or undergo medical underwriting again. However, if the death benefit is being increased significantly, evidence of insurability (such as a medical exam) may be required.
- Combines term and permanent insurance into a single plan: This statement is TRUE. Adjustable life insurance combines the features of both term and permanent insurance. It offers a level of permanent coverage with a death benefit and builds cash value, but the policyholder can adjust the amount of coverage or the duration of the term component if needed.
- An extra premium paid is allowable: This statement is TRUE. In many adjustable life policies, the policyholder can pay extra premiums to increase the cash value or adjust the death benefit. This allows the policyholder more control over the policy’s growth and coverage.
In summary, the false statement is about the requirement for evidence of insurability when changing the premium, as it is not typically necessary unless the death benefit is increased.