Question

16 prem is a 39 - year - old doctor who meets with an insurance agent to purchase a permanent life insurance policy. prem is willing to pay the required premiums in the policys early years but wants to make sure the premiums do not increase in the future. he wants the option to take out policy loans and would like to receive dividend payments. his agent recommends a participating whole life insurance policy, and prem asks if there are any drawbacks. which of the following is a drawback that prem should be aware of?
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a. coverage stops as soon as a premium payment is missed.
b. premiums tend to increase in the later years of the policy.
c. the policy does not offer nonforfeiture benefits.
d. policy dividends are only paid at the discretion of the insurance company.
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Explanation:

To solve this, we analyze each option for whole life insurance drawbacks:

• Option a: Coverage stopping on premium miss is for term, not whole life. Eliminate.
• Option b: Whole life premiums are level (fixed), so they don't increase later. Eliminate.
• Option c: Whole life (participating) often has nonforfeiture benefits. Eliminate.
• Option d: Dividends in participating policies are discretionary (insurance company decides if/when to pay). This matches a drawback of relying on dividends.

Answer:

d. Policy dividends are only paid at the discretion of the insurance company