Deck 8: Insuring Your Life

Question 1

The needs approach to evaluate the right amount of life insurance is the most accurate method to determine the proper amount of death benefits.

Answer 1

True

Question 2

A young widow will receive Social Security survivor's benefits for her entire life if her husband was covered by Social Security.

Answer 2

False

Question 3

The basic purpose of insurance is to protect you from the results of accidental losses.

Answer 3

True

Question 4

The life insurance needs of beneficiaries are secondary since most proceeds are paid to living policyholders.

Question 5

Social security benefits are often available resources to the family after the death of a family member.

Question 6

The primary purpose of life insurance is to protect family members financially after one's death.

Question 7

Avoiding alcoholic beverage while driving is an example of risk reduction.

Question 8

The need for additional life insurance can be determined by looking at the difference between available resources and family monetary needs.

Question 9

Risk avoidance means asking an insurance company to take over the risk for a small payment (the premium).

Question 10

The multiple of earnings approach to evaluating life insurance needs is simplistic but can be unreliable.

Question 11

Deciding to sell a motorcycle would be an example of risk sharing.

Question 12

Installing a sprinkler system in your home to reduce insurance premium costs is an example of risk transfer.

Question 13

Children's life insurance premiums are less expensive than adult's life insurance premiums.

Question 14

The needs approach can determine your life insurance requirements with a single step.

Question 15

Having a fire extinguisher in your home is an example of loss prevention.

Question 16

Spreading risk among a large number of people is a major principle of insurance.

Question 17

Peril is uncertainty regarding economic loss.

Question 18

Insurance company underwriters determine whom it can insure and what rating-class is appropriate.

Question 19

Underwriters can predict whether or not you will suffer a loss this year.

Question 20

Generally,the primary purpose of life insurance is to provide a tax-advantaged investment plan.

Question 21

Unbundling in universal life insurance means that the cost of the insurance and savings elements are identified separately for the policy owner to see.

Question 22

Whole life policies typically provide a high investment rate of return.

Question 23

Term insurance is generally the most economical form of life insurance for young families.

Question 24

Like universal life insurance,variable life insurance provides a minimum guaranteed return.

Question 25

One should avoid buying an annual term life insurance policy that does not have guaranteed renewability.

Question 26

Life insurance needs change dramatically over one's lifetime.

Question 27

Joint life insurance is more expensive than two single life policies.

Question 28

The return on term life insurance policies receive favorable tax treatment.

Question 29

Group life insurance is usually term life insurance.

Question 30

Limited payment whole life insurance is a contract written for a given number of years after which the face value is automatically paid to the insured.

Question 31

Survivorship (last-to-die)insurance is used primarily to help pay settlement cost for the second named insured.

Question 32

The right of the policyholder to the cash value of a whole life policy is a nonforfeiture right.

Question 33

Variable life insurance if most often the best plan for most people's primary insurance needs.

Question 34

A variable life policy combines life insurance coverage with tax-favored investment options.

Question 35

Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant.

Question 36

Guaranteed renewable term insurance allows you to renew the policy for another term at without qualifying medically.

Question 37

When you stop making premium payments on a whole life policy,the protection is immediately forfeited.

Question 38

Group life insurance is often provided as a fringe benefit by employers.

Question 39

A joint life,last-to-die,life insurance is used primarily to help pay estate taxes.

Question 40

The three major categories of life insurance are term,straight life,and limited payment.

Question 41

Vicki wants to name her husband,Jamil,as the primary beneficiary on her life insurance policy.Therefore,she should identify the beneficiary as "my husband."

Question 42

Credit life insurance is often a legal requirement when you buy something on credit.

Question 43

It is probably advisable to purchase life insurance from a company that has been in business for at least 25 years.

Question 44

Life insurance death benefits are not subject to income taxes.

Question 45

All types of life insurance offer a cash surrender value.

Question 46

Life insurance cash value may be collected by terminating the policy.

Question 47

One should typically name both primary and contingent beneficiaries for life insurance policies.

Question 48

If a named beneficiary does not survive an insured,the proceeds of the policy revert to the insurance company.

Question 49

Life insurance cash value may be borrowed from the insurer at a low interest and does not need to be paid back.

Question 50

Generally,the period-certain settlement option is desirable because life insurance companies pay higher than average interest rates.

Question 51

Loans are available from almost all life insurance policies.

Question 52

An attractive feature of whole life insurance is the availability of loans from the cash value.

Question 53

Because premiums get higher as you age,it is probably advisable for you to buy life insurance at age 20 to save money whether or not you need the insurance then.

Question 54

Mary Lou died from a heart attack.Her $20,000 policy had a double indemnity clause.Her beneficiary will receive $40,000.

Question 55

Bill's life insurance premium was due April 4.He died April 20 without having paid this premium.His beneficiary will not receive any payment.

Question 56

You may reinstate your lapsed life insurance policy without answering health related questions again.

Question 57

One should be concerned about unethical sales practices when promises are made that premiums will vanish in 3 or 4 years.

Question 58

Policy dividends paid on participating policies are a return of unused premium based upon the claims experience of the mutual insurance company.

Question 59

Universal life insurance is often suitable for single college students since the cost is quite low.

Question 60

A waiver of premium benefit excuses premium payment when the insured is unemployed.

Question 61

Individually owned life insurance premiums are generally tax deductible.

Question 62

Cash value is an important component of whole life,universal life,and variable life but is never a component of term insurance.

Question 63

Life insurance policy loans are generally not taxable in the year taken and not deductible in the year repaid.

Question 64

Actuarial data is statistical information that enables insurance companies to estimate the risk of loss faced by a population.

Question 65

From the standpoint of the person buying insurance,the central purpose of insurance should be:

A) to collect for all accidental losses
B) to transfer risks of serious losses
C) to support the prevention of losses
D) to accumulate savings
E) to reduce payments for the most frequently occurring losses

Question 66

The purchase of insurance is a common form of which risk management technique:

A) risk retention
B) risk transfer
C) risk assumption
D) risk avoidance
E) loss control

Question 67

Insurance underwriters must be experts in actuarial science.

Question 68

The face value on a whole life policy is likely to change over time.

Question 69

Which of the following types of policies is most likely to allow you to switch investments?

A) limited pay life
B) whole life
C) variable life
D) term life
E) adjustable whole life

Question 70

The basic purpose of insurance is to

A) protect your health.
B) protect you from losses.
C) supplement your income.
D) shield you from bad decisions.
E) none of these

Question 71

Which of the following forms of life insurance requires the lowest premium per dollar of initial death benefits?

A) universal life
B) whole life
C) variable life
D) term life
E) adjustable whole life

Question 72

When cash value is withdrawn from a life insurance policy it is always tax free.

Question 73

Lump-sum distributions of death benefits are generally excluded from federal income tax.

Question 74

Underwriting is best described as:

A) Activities related to selecting acceptable risks so that general insurer objectives are met.
B) Actuarial science
C) Production-related activities performed primarily by agents in the field
D) Process of developing pricing structures for insurance,often performed by an actuary
E) A function most often performed by adjusters.

Question 75

Kurt purchased a policy with an initial premium of $3,000 and may elect how much he desires to pay in premiums from now on.He has purchased a face value of $100,000 and can accumulate cash value.What type of life insurance has Kurt purchased?

A) universal life
B) whole life
C) modified whole life
D) term life
E) adjustable whole life

Question 76

Life insurance designed to pay the balance on a mortgage is an example of a good use decreasing term policy.

Question 77

Phil,who has enjoyed perfect health throughout his life,has determined that he needs a $1,000,000 30-year level term life insurance policy and is trying to choose the insurance company from which to purchase the policy.He predicts that his family will need the coverage for about 30 years.What should be the most important factor is Phil's decision of which insurance company to use?

A) price
B) cash value build up
C) underwriting service
D) claim service
E) financial strength

Question 78

Mike purchased a whole life policy with a face value of $1,000,000 and dies several years later.At the time of his death,Mike has: paid a total of $12,000 in premiums;accumulated $25,000 in cash value;received a total of $5,000 in policy dividends;and has a $10,000 policy loan outstanding.If Mike's beneficiaries elect to receive a lump-sum distribution of death benefits,how much will it be?

A) $1,025,000
B) $1,015,000
C) $1,000,000
D) $ 990,000
E) $ 985,000

Question 79

Cash value will not be forfeited to the insurance company for non-payment of a premium,but will instead always accrue to the benefit of the policy owner.

Question 80

Insurance is a tool that can lessen ____ risk.

A) social
B) mental
C) economic
D) accident
E) exposure