Kelly owns a life insurance policy. On January 1 she pays her annual premium of $20,000 to the insurer. On April 1, Kelly decides that she doesn't want her life insurance any more
She decides to cancel the policy, get back a pro-rata refund of the unused premium ($15,000), and use the money to pay for liposuction and a tummy tuck. What, if anything, is wrong with this scenario?
A) Nothing; Kelly will get back $15,000 and can have her surgery.
B) Kelly has made the faulty assumption that she will receive a pro-rata refund; she will instead receive a short-rate refund, which will be an amount less than $15,000.
C) Kelly has made the faulty assumption that she will receive any refund; cancellation of a life insurance policy does not result in a refund of premiums paid.
D) Kelly has made the faulty assumption that any surgeon can help her.
C
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