Which term compares the death benefits that are paid at death in 10 or 20 years, if the insured died at that time, and accounts for the time value of money?

Which term compares the death benefits that are paid at death in 10 or 20 years, if the insured died at that time, and accounts for the time value of money?

• A. Interest-adjusted net cost index
• B. Policy summary
• C. Buyer's guide
• D. Illustration

Answer: (A)

When you compare death benefits that would be paid years down the road, you must account for the time value of money. A dollar today is worth more than a dollar in the future because it can earn interest. The term that captures this by adjusting the policy’s net costs for an assumed interest rate—effectively converting future death benefits into present value for comparison—is the interest-adjusted net cost index. Other documents like a policy summary, a buyer's guide, or an illustration provide information about features, options, and projected numbers, but they aren’t the metric that factors future benefits into present value to compare costs across policies.

When you compare death benefits that would be paid years down the road, you must account for the time value of money. A dollar today is worth more than a dollar in the future because it can earn interest. The term that captures this by adjusting the policy’s net costs for an assumed interest rate—effectively converting future death benefits into present value for comparison—is the interest-adjusted net cost index.

Other documents like a policy summary, a buyer's guide, or an illustration provide information about features, options, and projected numbers, but they aren’t the metric that factors future benefits into present value to compare costs across policies.