Massachusetts Life Producer Practice Exam

When comparing life insurance policies, which index should a shopper focus on if they are mainly concerned with the policy's death benefit?

1. Net payment cost index

2. Internal rate of return index

3. Termination cost index

4. Comparative withdrawal index

The correct answer is: Net payment cost index

Focusing on the net payment cost index is essential for shoppers primarily concerned with a life insurance policy's death benefit. This index helps potential policyholders understand the cost associated with keeping the policy in force, particularly the cost of insurance relative to the death benefit that will be paid out upon the insured’s death. The net payment cost index specifically evaluates how much premium a policyholder would pay over a specified period, allowing them to compare different policies in terms of their cost effectiveness relative to the death benefit. For someone whose main concern is ensuring that their beneficiaries will receive a significant death benefit, understanding the long-term costs associated with maintaining that coverage is crucial. Other indices serve different purposes, such as the internal rate of return index, which is more focused on the investment growth aspect of the cash value of a policy, or the termination cost index, which deals with the costs involved if a policy is surrendered. The comparative withdrawal index assesses how various withdrawals from the policy affect its overall performance, which is also not directly related to the death benefit. Thus, the net payment cost index is the most relevant measure for someone primarily focused on the death benefit of life insurance policies.