Which of the Following Statements About Life Insurance Policy Loans

question 9

Multiple Choice

Which of the following statements about life insurance policy loans is true?

• A)Loans are only permitted for specific reasons listed in the policy.
• B)They are forgiven if the insured dies before the loans are repaid.
• C)The policyowner must pay interest on a life insurance policy loan.
• D)They must be repaid on the basis of a schedule determined at the time of the loan.

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, reflecting the time value of money and risk.

Profitability Index (PI)

The profitability index is a calculation used to assess the relative profitability of an investment, based on its present value of future cash flows per unit of investment.

Profitability Index (PI)

A calculation that relates the benefits of an investment project to its costs, often used to compare the attractiveness of different projects.

Discount Rate

The rate at which an individual discounts future cash flows to determine their present value, essential in capital budgeting to assess the profitability of investments.