Florida Life and Health Insurance License Practice Test

P purchases a $50,000 whole life insurance policy and later dies in a scuba-related accident. What will the insurer pay to P's beneficiary?

1. $50,000 minus any outstanding policy loans.

2. Nothing due to P's scuba diving activities.

3. A prorated death benefit based on policy duration.

4. Only the total amount of premiums paid by P.

The correct answer is: $50,000 minus any outstanding policy loans.

The correct answer is A because, as stated in the question, P has a whole life insurance policy. Whole life policies have a savings component, known as a cash value, which accumulates over time. This cash value can be borrowed against, but any outstanding loans at the time of the insured's death will be deducted from the death benefit before it is paid out to the beneficiary. Option B is incorrect because most life insurance policies do not have exclusions for death related to scuba diving unless it is a high-risk activity specifically excluded in the policy. Option C is incorrect because whole life policies do not have a prorated death benefit. Option D is incorrect because the death benefit for a whole life policy is not limited to the total amount of premiums paid, but rather the face value of the policy.