Deck 10: Financial Planning With Life Insurance

Question 1

The "family need" method of estimating life insurance includes factors such as Social Security and liquid assets.

Answer 1

True

Question 2

Mutual life insurance companies specialize in the sale of nonparticipating policies.

Answer 2

False

Question 3

If you switch life insurance policies, you will automatically still be insurable.

Answer 3

False

Question 4

A limited payment policy is a type of whole life policy that requires premiums to be paid for a certain length of time, usually 20 or 30 years.

Question 5

Life insurance is a wise purchase for all individuals.

Question 6

According to the suicide clause, the beneficiaries of someone who dies by suicide will never be eligible to receive any benefits from his or her life insurance policy.

Question 7

The sooner a person is likely to die, the lower the premiums he or she will pay.

Question 8

Premium payments are fixed with a variable life policy.

Question 9

The lower the interest-adjusted index, the lower the cost of a life insurance policy.

Question 10

Decreasing term insurance pays less to the beneficiary as time passes.

Question 11

Purchasing a life insurance policy is a basic and inexpensive purchase.

Question 12

Life expectancy for men is longer than that for women.

Question 13

The "nonworking" spouse method of estimating life insurance includes factors such as Social Security and liquid assets.

Question 14

The most widely used settlement option for a life insurance program is the lump-sum payment.

Question 15

An interest-adjusted index is a method of evaluating the cost of life insurance by taking into account the time value of money.

Question 16

Another name for a straight term policy is renewable return-of-premium term policy.

Question 17

Life insurance benefits may be used to pay off a home mortgage or other debts at the time of death.

Question 18

Return-of-premium term pays out all premiums plus interest to a beneficiary.

Question 19

Competition among companies with comparable policies affects the price a company charges for life insurance.

Question 20

If you change your mind about your insurance policy, you have 60 days to return it to receive a refund of your premium.

Question 21

In 2014 life expectancy has risen, and a male who is 25 years old can expect to live an additional 50 years.

Question 22

Donald and Charlene are married and do not have any children. They plan to ensure that the other will not be unduly burdened by debts in case one of them dies. Each plans to continue to work after the other one dies. Which method are they using to determine their life insurance needs?

A) Easy method
B) Dual income, no kids method
C) Formal calculation method
D) Nonworking spouse method
E) Family needs method

Question 23

When you buy life insurance, you are making a contract with the company issuing the policy where you agree to pay a premium periodically and the company agrees to pay a death benefit.

Question 24

An administrative fee of $150 per year may be deducted to cover recordkeeping and other administrative expenses related to a variable annuity.

Question 25

Francisco and Maria have three children and want to complete a detailed worksheet to determine the amount of life insurance they need to purchase. They will consider factors such as Social Security and liquid assets. Which method are they using to determine their life insurance needs?

A) Easy method
B) Dual income, no kids method
C) Formal calculation method
D) Nonworking spouse method
E) Family need method

Question 26

Jeff and Erica have two children. They plan to purchase life insurance using this formula: (18 - Youngest child's age) × $10,000. Which method are they using to determine their life insurance needs?

A) Easy method
B) Dual income, no kids method
C) Formal calculation method
D) Nonworking spouse method
E) Family need method

Question 27

Jeanne wants to purchase a life insurance policy with guaranteed premiums. What kind of policy would she want to purchase?

A) Dividend policy
B) Nonparticipating policy
C) Mutual policy
D) Participating policy
E) Stock policy

Question 28

Which of the following households most likely has the greatest need for life insurance?

A) Single adult living alone.
B) Adult child living with parents.
C) Retired couple with a pension.
D) Household with children.
E) Independently wealthy adult.

Question 29

You want to purchase a life insurance policy that pays a policy dividend. What kind of policy would you want to purchase?

A) Dividend policy
B) Nonparticipating policy
C) Mutual policy
D) Participating policy
E) Stock policy

Question 30

Judy and James have a 4-year-old child. They plan to purchase life insurance using this formula: Current income × 7 × 70%. Which method are they using to determine their life insurance needs?

A) Easy method
B) Dual income, no kids method
C) Formal calculation method
D) Nonworking spouse method
E) Family need method

Question 31

Most people buy life insurance to

A) Pay off a loan on an automobile.
B) Protect the people who depend on the insured from financial losses caused by his or her death.
C) Pay for a vacation.
D) Spend money.
E) Pay taxes.

Question 32

In 2014 life expectancy has risen, and a female who is 30 years old can expect to live an additional 55 years.

Question 33

Of the 868 life insurance companies in the United States, about ___ are stock companies.

A) 5%
B) 25%
C) 50%
D) 75%
E) 95%

Question 34

Todd plans to purchase a life insurance policy from a stock life insurance company. What kind of policy is he planning to purchase?

A) Dividend policy
B) Nonparticipating policy
C) Mutual policy
D) Participating policy
E) Stock policy

Question 35

A person who is named to receive the proceeds from a life insurance policy is a(n)

A) Contract.
B) Beneficiary.
C) Policyholder.
D) Insurer.
E) Child.

Question 36

If you shop for insurance on the internet, the website is secure if the URL begins with "https:" or if the lock icon is in the address bar.

Question 37

If you have misplaced a life insurance policy, your state's insurance commission may be able to help you locate it.

Question 38

The earnings from an investment in an annuity is taxed the same as earnings from an investment in a certificate of deposit.

Question 39

Annuities are more attractive for people who expect to live only a short time.

Question 40

Another name for temporary life insurance is

A) Whole life insurance.
B) Straight life insurance.
C) Ordinary life insurance.
D) Term life insurance.
E) Cash value life insurance.

Question 41

Fred bought life insurance when he was 47, although he told the insurance company that he was 42. He has since died. Which of the following provisions will affect the amount of money his beneficiaries will receive?

A) Incontestability clause
B) Misstatement of age provision
C) Naming a beneficiary
D) Policy reinstatement
E) The grace period

Question 42

This term life insurance policy will guarantee that you will pay the same premium for the duration of your policy.

A) Renewable term
B) Multiyear level term
C) Decreasing term
D) Limited payment
E) Conversion term

Question 43

If you have a multiyear level term policy,

A) You can convert your policy to a permanent type at the end of the term.
B) You policy will continue for one year.
C) Your premium will be the same for the duration of your policy.
D) Your premium will not increase when you renew it.
E) All of the above are correct.

Question 44

Another name for a straight term policy is

A) Renewable term.
B) Multiyear level term.
C) Decreasing term.
D) Limited payment.
E) Conversion term.

Question 45

If you have a conversion term policy,

A) Your premium will not increase when you renew it.
B) You can convert your policy from permanent to term at any time.
C) You can convert your term policy to a permanent policy.
D) Your policy will have the same premium as other term policies.
E) Your benefit to your beneficiary will be less as time passes.

Question 46

If you have a renewable term policy,

A) You may not continue it for another term once your term ends.
B) Your premium may increase if you continue it for another term because you will be older.
C) Your premium will not increase because your policy is renewable.
D) You can convert your policy to a permanent type at the end of the term.
E) All of the above are correct.

Question 47

Which of the following is NOT a type of permanent life insurance?

A) Whole life
B) Variable life
C) Universal life
D) Adjustable life
E) Decreasing term

Question 48

Pam just started working at XYZ Widget Company and finally wants to get insurance coverage through her employer. She does not want to take a medical exam to get coverage, because she has some underlying health conditions and is concerned that she might not qualify for a policy. Which of the following life insurance policies should she apply for?

A) Adjustable life
B) Group life
C) Limited life
D) Universal life
E) Variable life

Question 49

This life insurance is used to pay off certain debts, such as auto loans, in the event that you die before the debts are paid in full. Which of the following is not the best buy for the amount of protection offered for an individual?

A) Group life
B) Term
C) Credit life
D) Endowment life
E) Adjustable life

Question 50

Of the following, which one is the most positive feature of whole life insurance for a person who wants a more structured way to save?

A) You must pay interest on any loans.
B) You pay premiums each year for the rest of your life.
C) It is more expensive than term insurance.
D) It builds cash value.
E) It is permanent life insurance.

Question 51

Molly is thinking about buying a type of whole life insurance policy, but she is not sure about how much she will need in the next few years. She may need to change her coverage as her needs change. Which of the following policies would meet her needs?

A) Adjustable life
B) Group life
C) Limited life
D) Universal life
E) Variable life

Question 52

Which of the following provisions requires the policyholder to again qualify as an acceptable risk and pay overdue premiums with interest in order to put a lapsed policy back in force?

A) Incontestability clause
B) Misstatement of age provision
C) Naming a beneficiary
D) Policy reinstatement
E) The grace period

Question 53

Wendy has had a life insurance policy for five years with her spouse listed as the person who receives the benefit if she dies. She was recently divorced. Which of the following provisions should she take action on?

A) Incontestability clause
B) Misstatement of age provision
C) Naming a beneficiary
D) Policy reinstatement
E) The grace period

Question 54

Which of the following is NOT a type of permanent insurance?

A) Whole life
B) Straight life
C) Ordinary life
D) Term life
E) Cash value

Question 55

Another name for permanent life insurance is

A) Whole life.
B) Renewable term.
C) Conversion term.
D) Decreasing term.
E) Return-of-Premium term.

Question 56

Which of the following is NOT a feature of whole life insurance?

A) It accumulates cash value.
B) It provides both a death benefit and a savings component.
C) The policy will return all premiums if you survive to the end of the policy.
D) You can borrow from your cash value but must pay interest on the loan.
E) The policy requires that you pay a specified premium each year for the rest of your life.

Question 57

Which of the following is NOT temporary insurance?

A) Whole life
B) Renewable term
C) Conversion term
D) Decreasing term
E) Multiyear level term

Question 58

Megan wants to purchase a type of whole life insurance policy that will allow part of her premium to be invested in stock, bonds, or money market funds. Which of the following policies should she buy?

A) Adjustable life
B) Group life
C) Limited life
D) Universal life
E) Variable life

Question 59

If you want to purchase term insurance, you will receive all of the following except

A) Protection against loss of life for only a specified term.
B) Cash value.
C) Temporary insurance.
D) A benefit during the period it covers, such as 1, 5, 10, or 20 years.
E) A policy whose coverage continues if you stop paying premiums.

Question 60

Polly wants the opportunity to change the amount she pays for her annual premium through the life of her insurance policy without changing her coverage. Which of the following types of whole life policies would meet her needs?

A) Adjustable life
B) Group life
C) Limited life
D) Universal life
E) Variable life

Question 61

The policy loan provision means that

A) An individual can take out a loan on his or her term policy.
B) The death benefit will be increased by the amount of an outstanding policy loan.
C) The policy owner can borrow any amount up to the cash value of the policy.
D) The beneficiary can borrow any amount up to the total benefit.
E) No interest will accumulate for any loans related to life insurance.

Question 62

Amy bought a life insurance policy and named Ben as her beneficiary. She has since died. Who will receive the benefits from her policy?

A) Ben.
B) Ben's beneficiaries.
C) Her contingent beneficiaries.
D) Her parents.
E) None of these.

Question 63

Which of the following annuities is purchased with a lump-sum payment and allows an individual to receive income payments beginning now?

A) Term insurance
B) Deferred annuity
C) Whole life insurance
D) Immediate annuity
E) Universal life insurance

Question 64

Bill is worried about being able to pay his premium if he is totally and permanently disabled before age 60. Which of the following riders should he consider?

A) Waiver of premium disability benefit
B) Accidental death benefit
C) Guaranteed insurability option
D) Cost-of-living protection
E) Accelerated benefits

Question 65

All of the following are major rating agencies for insurance except

A) A.M. Best.
B) Dun & Bradstreet.
C) Moody's.
D) Standard & Poor's.
E) Weiss Research.

Question 66

Frank, age 38, was killed in a car accident. Which of the following riders provided an additional benefit for his heirs?

A) Waiver of premium disability benefit
B) Accidental death benefit
C) Guaranteed insurability option
D) Cost-of-living protection
E) Accelerated benefits

Question 67

Fred bought life insurance five years ago. He forgot to tell them that he had a heart condition, and, as a result of that condition, he recently died. Which of the following provisions prevents the life insurance company from refusing to pay his beneficiaries because of his original fraudulent misrepresentation?

A) Incontestability clause
B) Misstatement of age provision
C) Naming a beneficiary
D) Policy reinstatement
E) The grace period

Question 68

Bonnie is most concerned about being able to buy additional insurance without undergoing medical exams. Which of the following riders should she consider?

A) Waiver of premium disability benefit
B) Accidental death benefit
C) Guaranteed insurability option
D) Cost-of-living protection
E) Accelerated benefits

Question 69

Which of the following is NOT a factor that affects the price a company charges for a life insurance policy?

A) The company's cost of doing business.
B) The return on its investments.
C) The mortality rate it expects among its policyholders.
D) The policy features.
E) All of these affect the price.

Question 70

Which of the following statements is correct?

A) A deferred annuity allows an individual to receive payments from an annuity immediately.
B) A deferred annuity allows an individual to receive payments from a life insurance policy immediately.
C) A life insurance policy allows an individual to receive payments from an annuity at once.
D) A deferred annuity allows an individual to receive payments from a life insurance policy at some future date.
E) An immediate annuity allows an individual to receive income payments from an annuity beginning at once.

Question 71

Mildred was diagnosed with terminal cancer and knows that she doesn't have long to live. Which of the following riders would allow her to receive cash now?

A) Waiver of premium disability benefit
B) Accidental death benefit
C) Guaranteed insurability option
D) Cost-of-living protection
E) Accelerated benefits

Question 72

After you purchase a life insurance contract, you have a "free look" period that lasts

A) 3 days.
B) 5 days.
C) 10 days.
D) 30 days.
E) 60 days.

Question 73

Georgia was supposed to pay her premium by the 15^th of the month. Which of the following provisions allows her to keep her coverage if she is a couple of weeks late with paying her premium (without penalty)?

A) Incontestability clause
B) Misstatement of age provision
C) Naming a beneficiary
D) Policy reinstatement
E) The grace period

Question 74

Which of the following statements is incorrect?

A) A deferred annuity allows an individual to receive payments from an annuity at some future date.
B) An immediate annuity allows an individual to receive income payments from an annuity beginning at once.
C) A life insurance policy allows the beneficiary to receive proceeds at some future date.
D) An annuity is more advisable for people in poor health than for those who are likely to live longer than average.
E) An annuity is a financial contract written by an insurance company that provides you with regular income.

Question 75

Which of the following is NOT important when buying life insurance?

A) Buying from a financially strong company
B) Buying from professionally qualified representatives
C) The reputations of local agencies
D) Working with a representative who will help you select the proper kind of protection within your financial boundaries
E) Asking family or friends for recommendations to choose an insurance company

Question 76

The settlement option in which the company acts as trustee and pays interest to the beneficiary is called

A) Lump-sum payment.
B) Limited installment payment.
C) Final life payment.
D) Life income option.
E) Proceeds left with the company.

Question 77

A young employee is buying individual life insurance and is worried about the impact inflation will have on his life insurance coverage. Which of the following riders should he consider?

A) Waiver of premium disability benefit
B) Accidental death benefit
C) Guaranteed insurability option
D) Cost-of-living protection
E) Accelerated benefits

Question 78

The settlement option that pays the life insurance proceeds to the beneficiary for as long as she or he lives is called

A) Lump-sum payment.
B) Limited installment payment.
C) Final life payment.
D) Life income option.
E) Proceeds left with the company.

Question 79

The settlement option that pays the life insurance proceeds in equal periodic installments for a specified number of years after your death is called

A) Lump-sum payment.
B) Limited installment payment.
C) Final life payment.
D) Life income option.
E) Proceeds left with the company.

Question 80

What is the most important part of an insurance agent's job?

A) Sell you the highest level of coverage available.
B) Collect premiums for the insurance contract.
C) Tell you why her product is better than the competitor's.
D) Help you select the proper kind of protection within your financial boundaries.
E) Convince you to buy the policy that will pay her the highest commission.