Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

In the context of variable contracts, what does the death benefit to the beneficiary typically represent?

1. The full invested amount only

2. The total premiums paid

3. The cash value of the policy at the time of death

4. The policy's death benefit minus any loans

The correct answer is: The policy's death benefit minus any loans

In the context of variable contracts, the death benefit to the beneficiary typically represents the policy's death benefit minus any loans taken against the policy. This means that if the policyholder has borrowed funds from the cash value of the policy, the outstanding loan amount will be subtracted from the total death benefit that the beneficiary receives upon the policyholder's death. Variable contracts are unique in that they have an investment component associated with them, meaning the cash value can fluctuate based on the performance of the underlying investments. However, regardless of the fluctuations in cash value, the death benefit is determined by the specific terms of the policy and may include provisions for loans. Thus, when a borrower takes a loan against the cash value, it reduces the total amount that can be passed on as a death benefit. In essence, the beneficiary will receive the death benefit amount specified in the policy minus any outstanding loans, ensuring that the policyholder's borrowing does not unfairly diminish the benefit intended for the beneficiary.