If a small business owner uses her life insurance policy as collateral for a bank loan, and the outstanding loan balance upon her death is $10,000, how much will the beneficiary receive if the policy's face amount is $100,000?

When a life insurance policy is used as collateral for a bank loan, the amount of the insurance benefit that will be paid out to the beneficiary upon the insured's death will be affected by the outstanding balance of the loan. In this situation, the policy's face amount is $100,000, but there is an outstanding loan balance of $10,000 at the time of the business owner's death.

The beneficiary will receive the full face amount of the policy, which is $100,000, minus the amount owed to the bank. Since the loan balance is $10,000, the insurance company will deduct this from the total benefit. Therefore, the calculation is as follows:

$100,000 (face amount) - $10,000 (loan balance) = $90,000.

This means that the beneficiary will receive $90,000 after the loan is settled. This is why the correct answer reflects the reduction of the death benefit by the outstanding loan amount, ultimately providing the beneficiary with a net benefit of $90,000.