First-to-Die Life Insurance

In a joint (first-to-die) life insurance policy, the death benefit is paid:

1. A.When the first insured diesCorrect - pays at the first death.
2. B.When the second insured diesThis describes survivorship, or second-to-die, coverage. The stem specifies first-to-die, where the payout is triggered by the earlier of the two deaths.
3. C.Only if both dieThis would force the survivor's family to wait for a second death before any money arrived, defeating the purpose of the design. The benefit turns on the first death, not on both.
4. D.At policy maturity onlyMaturity is a feature of a permanent contract endowing at a stated age, not the trigger here. This design pays upon a death, and specifically upon the first one.

Why: A first-to-die policy pays upon the death of the first of the insureds.

Nadia and Ines co-own a bakery and want a single policy that pays at whichever partner dies FIRST, giving the survivor cash to buy out the deceased partner's share. They should purchase:

1. A.Two individual whole life policies, each naming the insured's own estate as beneficiaryNaming each estate sends the money to heirs rather than to the surviving partner who must fund the purchase.
2. B.A family policy with a spouse rider covering both business ownersFamily policies and spouse riders are designed for household relationships, not unrelated business co-owners.
3. C.A joint life (first-to-die) policy, which pays the face amount at the earlier of the two deathsCorrect. One contract, two insureds, benefit payable at the first death, which funds the buyout.
4. D.A survivorship (second-to-die) policy, which pays after both insureds have diedThis pays too late. The surviving partner would have no funds to complete the buyout.

Why: A joint life, or first-to-die, policy insures two or more lives under one contract and pays the face amount at the first death. That is exactly the trigger a two-owner buy-sell needs. One policy covers both lives, which is administratively simpler and cheaper than two individual policies. The clue is 'whichever partner dies FIRST' plus a single policy.

A couple wanting one policy that pays at the FIRST death of either spouse should buy:

1. A.Joint life (first-to-die)Correct - pays at the first death.
2. B.Two separate term policies onlyTwo individual policies would pay on the first death, so the coverage outcome is close. The stem asks for a single contract covering both spouses, and separate policies also mean two sets of policy charges and underwriting.
3. C.A deferred annuityA deferred annuity accumulates funds for future income and is not triggered by anyone's death. It provides no death benefit payable on the first spouse to die.
4. D.Survivorship (second-to-die) lifeSurvivorship is the right product family and also insures two lives under one contract, which is why it is the strongest distractor. Its trigger is reversed: second-to-die pays only after both spouses have died, while the stem asks for payment at the first death.

Why: Joint life (first-to-die) pays the benefit upon the first insured's death.

Ravindra and Neela own a 600,000-dollar joint first-to-die policy that includes a survivor purchase option. Ravindra dies in the eighth policy year. Which statement describes Neela's position?

1. A.Her coverage continues under the same contract for the remaining term at half the original premiumA first-to-die contract terminates when it pays. Nothing continues on the surviving life under the same policy.
2. B.She may keep the policy in force on her own life by continuing the same premium, with the death benefit remaining 600,000 dollarsThis describes a survivorship, or second-to-die, policy, where the first death changes nothing and the benefit waits for the second death.
3. C.She must provide evidence of insurability to exercise the option, because the original underwriting was based on two livesWaiving evidence of insurability is the entire value of the option. Requiring it would leave her no better off than any other applicant.
4. D.She receives the 600,000 dollars, the contract terminates, and she may buy a new individual policy on her own life up to the original face amount without evidence of insurability if she exercises the option in timeCorrect. That is exactly what the survivor purchase option is for.

Why: A joint first-to-die contract pays once, at the first death, and then terminates. The survivor purchase option exists precisely because the survivor is left uninsured at an older age: it lets Neela buy a new individual policy on her own life, typically up to the original face amount, without evidence of insurability, if she acts within the stated window. The clue is that the policy is first-to-die AND carries the option, which would be pointless if coverage simply continued.