Deck 9: Life and Health Insurance

Question 1

Life insurance may not be necessary if

A) you're single and don't have any dependents.
B) you're married, a double-income couple, with no children.
C) you're married but aren't employed.
D) you're retired.
E) all of the above.

Answer 1

all of the above.

Question 2

The Patient Protection and Affordable Care Act was signed into law in 2010; however many of its aspects do not go into effect until 2020.

Answer 2

False

Question 3

An insurance policy is a contract with an insurance company that spells out what losses are covered, what the policy costs, and who receives the payment if a loss occurs.

Answer 3

True

Question 4

The individual designated by the owner of the life insurance policy to receive the policy's proceeds upon the death of the insured is called the

A) policy holder.
B) beneficiary.
C) insured.
D) actuary.

Question 5

Andrew and Alice have health issues that may be passed on to their children. When the children are born would they be wise to obtain life insurance immediately on the infants prior to any of the medical conditions arising?

A) Yes, this would be wise as the infant is not likely to have to pass a physical exam.
B) No, they should wait until the child is an adult and let him or her decide if she or he wants insurance.

Question 6

Statisticians who specialize in estimating the probability of death based on personal characteristics are called

A) morbidity analysts.
B) actuaries.
C) insurance analysts.
D) morbidity statisticians.
E) none of the above

Question 7

Actuaries are statisticians who specialize in estimating the probability of death based on personal characteristics, such as your age and general health, as well as lifestyle specifics such as whether or not you exercise.

Question 8

Why is the beneficiary decision so important when buying life Insurance?

Question 9

The beneficiary is the individual designated by the owner of the life insurance policy to receive the insurance policy's proceeds upon the death of the insured.

Question 10

Life insurance is not meant to benefit you, its purpose is to protect others in the event of your death.

Question 11

Life insurance and health insurance are designed to transfer the catastrophic risk you can't afford to keep onto the insurance companies.

Question 12

Wayne and Sarah are trying to manage the risk they face in life a best as they can. They are following Principle 7 which states:

A) The best protection is knowledge.
B) Protect yourself against major catastrophes.
C) Nothing happens without a plan.
D) Diversification reduces risk.
E) The best insurance is prevention.

Question 13

Why is being the Policy owner so important?

Question 14

Currently only 10% of Americans receive some type of government health care entitlements such as Medicaid or Medicare.

Question 15

What are some good reasons for a young, healthy, single person to purchase life insurance?

Question 16

All life insurance policies should have a contingent beneficiary designated.

Question 17

In dealing with risk, one can either avoid it, manage it, or transfer it for a fee.

Question 18

What is the main purpose of life insurance?

Question 19

Sharing the financial consequences associated with risk in the insurance industry is sometimes called

A) risk pooling.
B) risk deferring.
C) risk migration.
D) risk splitting.
E) none of the above

Question 20

One of the reasons insurance is so expensive is due to the expense of developing, testing and verifying new drugs. This cost is passed on to consumers.

Question 21

One of the best features of term insurance is that you are able to borrow against the face value.

Question 22

With term life insurance, the beneficiary receives a fixed death benefit.

Question 23

A disadvantage of term insurance is that the cost rises each time the policy is renewed.

Question 24

Roxanne has been stricken with a muscular degeneration disease that may potentially shorten her life span. However, she chose a renewable term insurance policy because she is able to be continually renew the policy for an agreed-upon period, regardless of her deteriorating condition.

Question 25

The policy owner must pay the premium during the grace period or they forfeit the policy.

Question 26

Suppose that you have decided to buy some life insurance. Which method of determining your life insurance needs calculates the annual loss of income stream?

A) needs approach
B) earnings multiple approach
C) limited term approach
D) whole life approach

Question 27

Your agent has told you to think about immediate needs at the time of death, debt elimination funds, immediate transitional funds, dependency expenses, spousal life income, educational expenses for the children, and retirement income. What has he described?

A) the multiple earnings need approach
B) the needs approach
C) the standard approach
D) the combination approach
E) the long-term approach

Question 28

Using the earnings multiple approach is determining the present value of an annuity as a means to determine the face value of the insurance policy one needs to purchase.

Question 29

For which of these situations is life insurance a good idea?

A) married with children
B) married, single-income couple with no children
C) single with no dependents
D) Only A and B
E) All of the above.

Question 30

You know you desperately need life insurance but don't have much money available for premiums. What is the best thing you can do to find affordable insurance?

A) Buy directly from the insurance company.
B) Buy term insurance.
C) Use the Internet to shop around for the best quotes.
D) All of the above.

Question 31

Convertible term life insurance can be converted into cash-value life insurance, depending on the insured's medical condition pending a medical exam.

Question 32

The earnings multiple approach is based on the notion that you want to replace a stream of annual income that's lost due to the death of a breadwinner.

Question 33

The suicide clause will pay double the face value to the beneficiary if the named insured commits suicide.

Question 34

A guaranteed insurability rider allows you to increase your face value even if your health fails.

Question 35

Most life insurance settlements are based on the named insured dying from an accidental death.

Question 36

Term life insurance provides protection for a specified amount of time; typically 1-30 years.

Question 37

With decreasing term life insurance, the face amount of the policy remains constant, but the premiums decrease.

Question 38

The nonforfeiture right gives the policyholder the cash value of the policy in exchange for the policyholder giving up his or her right to a death benefit.

Question 39

With the needs approach, you should take into consideration any additional insurance policies that have been taken out on your life.

Question 40

Sandra is terrible at saving; therefore her insurance advisor suggested a term life insurance policy for her since it has a saving/investing aspect.

Question 41

With decreasing term insurance

A) the premiums remain constant, but the face amount of the policy declines.
B) the premiums decline, and the face amount of the policy declines.
C) the premiums remain constant, and the face amount of the policy remains constant.
D) the premiums decline, and the face amount of the policy increases.

Question 42

The settlement option that provides for ongoing payments for a period of time is called ________.

A) an annuity
B) a reverse premium
C) a premium payout
D) an annual premium

Question 43

Sally brings home $50,000 a year to help provide financial support to her family, comprised of her husband and two children. She is considering purchasing life insurance. Using the earnings multiple approach, how much coverage should she purchase using a discount rate of 5% to replace 10 years of earnings.

A) $500,000
B) $386,000
C) $340,005
D) $301,148

Question 44

Most likely, when you apply for life insurance, you will have to fill out a detailed medical history and take a physical exam. Why is this true?

A) The insurance company wants to see if you have any pre-existing conditions.
B) It prevents sick people from purchasing insurance.
C) It determines how you will be rated and what premiums you will pay.
D) All of the above.
E) All but B are correct.

Question 45

What are the main features of whole life insurance?

A) The premiums stay constant for your entire life.
B) The nonforfeiture right allows you access to the cash value account if needed.
C) It provides your with permanent insurance regardless of age and health issues.
D) All of the above are correct.
E) All but B are correct.

Question 46

What are the risks associated with term insurance policies?

A) You may need to have insurance coverage past the term expiration date.
B) The cash value does not earn a decent return.
C) The renewal premium may be cost prohibitive.
D) Both A and C are correct.

Question 47

What is the purpose of companies such as A.M.Best, Moody's and Standard & Poor's?

A) They sell life insurance directly to consumers without agents.
B) They evaluate and rate the financial stability of the insurance industry.
C) They provide reinsurance coverage to the insurance industry.
D) They sell low cost term insurance via the Internet.

Question 48

Statisticians who specialize in estimating the probability of death based on personal characteristics are known as ________.

A) insurance adjusters
B) vultures
C) actuaries
D) beneficiaries

Question 49

John purchases a life insurance policy on his wife Betty where he pays the premium and he will receive the life insurance money when she dies. John is both the ________ and the ________ who will receive the ________ upon the death of Betty, the ________.

A) insured; beneficiary; money; policyholder
B) policy owner; beneficiary; face amount; insured
C) policy owner; insured; face amount; beneficiary
D) beneficiary; premium payer; face amount; policy holder
E) none of the above

Question 50

The needs approach to determining life insurance amounts considers which of the following?

A) immediate financial needs
B) debt elimination funds
C) dependency expenses
D) All of the above.

Question 51

Life insurance buying is a new experience for many people. Which of the following is not a basic consideration when determining life insurance needs?

A) whether or not you need life insurance at this time
B) the amount of coverage you need now and in the future
C) the settlement options.
D) the type of life insurance that fits your needs
E) shopping around for the best agent and price

Question 52

The needs approach attempts to determine the amount of funds necessary to meet the needs of a family after the death of the primary breadwinner. Name the seven common family needs.

Question 53

What are the disadvantages of group term insurance?

A) The premiums are usually subsidized by the employer.
B) The cost to covert from group coverage to individual coverage if you leave the company may be cost prohibitive.
C) Relying on group insurance may hinder your decision to leave the company.
D) Both B and C are correct.

Question 54

List five questions you should ask in an attempt to determine life insurance needs.

Question 55

Riley knows her ex-husband would not think about taking out a life insurance policy on himself to protect their two children in the event of his untimely death. As a result, Riles is taking out a policy on him and paying for it herself. That makes Riley the ________ and her children are the ________.

A) insured, policy holders
B) policy owner, beneficiaries
C) beneficiary, policy holders
D) insured, policy owners
E) none of the above.

Question 56

Typically, who should buy life insurance?

Question 57

What are the advantages of term life insurance?

A) It allows you to increase your insurance coverage for specific reasons and specific time periods.
B) With decreasing term coverage, your premiums get smaller as you get older.
C) It has no investment feature so it costs less than other forms of insurance.
D) all of the above are correct.
E) Only A and C are correct.

Question 58

Using the needs approach to determine the amount of coverage looks from the perspective of the ________.

A) policy owner
B) named insured
C) beneficiary
D) salesman.

Question 59

________ is insurance that provides permanent insurance coverage as whole life does; however the policyholder, not the insurance company, takes on the investment risk.

A) Variable life insurance
B) Universal life insurance
C) Convertible life insurance
D) None of the above.

Question 60

Cash value policies include a ________ clause that allows you to borrow against the cash value of the policy.

A) reinstatement
B) liquidity
C) loan
D) grace period

Question 61

A universal life insurance policy is a type of cash-value insurance combining term insurance with a tax-deferred savings feature in a package in which both the premiums and the benefits are flexible.

Question 62

Why is it critically important to check out the financial health of a Life Insurance Company through a ratings company like A.M. Best before you purchase the insurance?

Question 63

What factors should be considered when selecting a life insurance policy?

Question 64

Sonny Coltraine was told by a friend that universal life is the best policy. He will find that

A) it will have a tax-deferred savings feature.
B) death benefits are not taxable income.
C) death benefits and premiums are fixed.
D) death benefits and premiums are flexible.
E) A, B, and D above

Question 65

The money that the policy holder is entitled to if the policy is terminated is known as the face value.

Question 66

A method of determining how much life insurance you require based on funds your family would require to maintain its lifestyle after your death is called the

A) earnings multiple approach.
B) needs approach.
C) cash liquidity approach.
D) funds analysis approach.
E) none of the above

Question 67

You want to get a good buy on your life insurance contract. You find a book that compares insurance costs by incorporating the time value of money into its calculations. This method allows you to select wisely using the

A) interest-adjusted net cost method.
B) traditional net cost method.
C) variable method.
D) comparison cost index.

Question 68

With decreasing term insurance, each time the term insurance is renewed the premium decreases.

Question 69

Term life insurance has a life insurance component and a savings plan.

Question 70

Cash-value insurance is any policy that provides both a death benefit and an opportunity to accumulate cash value.

Question 71

Charles is the sole beneficiary of his late uncle's life insurance policy. The face value of the policy is $785,000. Charles has decided to accept annual annuity payments of $95,000. The interest rate on the policy is 5%. How many annual payments will Charles receive from this policy?

A) 7.08 years worth of payments
B) 8.26 years worth of payments
C) 10.92 years worth of payments
D) none of the above

Question 72

Using the earnings multiple approach calculate how much life insurance Heather and Robert need to take out on Heather. She earns $80,000 and is 37 years old. They want coverage until she retires at age 67. Robert is sure he can get an annual rate of return on the policy settlement of 8%. They have no children.

A) $1,004,227
B) $997,553
C) $854,214
D) $630,417
E) none of the above

Question 73

Define policy rider and describe the purpose of the five basic ones.

Question 74

You might consider another insurance agent if your agent uses the ________ method to analyze the costs of a policy.

A) TNC
B) IANC
C) NCO
D) TLC
E) none of the above

Question 75

Joleene is a single parent with two children and earns $45,000 per year. She is purchasing term life insurance for 15 years until her youngest child is self supporting. Assuming her survivors can receive a 3% after-tax, inflation return on insurance proceeds, use the earnings multiple approach to calculate the face value of Joleen's policy.

A) $33,445
B) $547,851
C) $397,548
D) $556,668
E) none of the above

Question 76

The advantage of whole life insurance is that it is generally cheaper than term life insurance per dollar of coverage.

Question 77

It should be everyone's goal to become self-insured when it comes to Life insurance. Explain how and why this should be?

Question 78

Billy's occupation is a potentially dangerous one - he is a skydiving instructor. His agent pointed out that the monthly premiums will be high. Billy wants a lot of value for his money. He could take advantage of ________ life insurance at this time to save money.

A) universal
B) variable
C) term
D) credit
E) whole

Question 79

Briefly explain the four common settlement options.

Question 80

Your agent argues in favor of cash-value life insurance. You counteract with term to

A) have a larger policy and keep things simple.
B) enjoy a relatively low cost per each $1,000 of coverage.
C) have a lot of insurance at affordable prices when you need it the most.
D) save the difference you would pay, invest it, and come out ahead.
E) all of the above