Massachusetts Life Producer Practice Exam

What impact might a long-term care benefit rider have on a life insurance policy?

1. Increased premiums.

2. Enhanced cash value accumulation.

3. Reduced death benefit.

4. Extended premium payment period.

The correct answer is: Reduced death benefit.

Selecting a long-term care benefit rider can lead to a reduction in the death benefit of a life insurance policy. This rider allows the policyholder to access a portion of the death benefit while still alive, in the event they require long-term care due to chronic illness or disability. When the policyholder utilizes these benefits, the total available death benefit for beneficiaries will be diminished accordingly. The design of this rider acknowledges that the financial needs for long-term care could coincide or even outlast the life insurance's intended purpose, which is to provide a payout upon the policyholder’s death. Utilizing this living benefit effectively converts part of the death benefit into funds for care expenses, thus reducing what remains for the beneficiaries after the policyholder's passing. While the other options mention aspects like increased premiums, enhanced cash value accumulation, or extended premium payment periods, they do not accurately describe the direct consequences of adding a rider that specifically addresses long-term care needs. Instead, it’s the reduction in the death benefit that clearly reflects the trade-off involved when a policyholder opts to access funds through this rider.