Deck 8: Insuring Your Life

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Life insurance needs change dramatically over one's lifetime.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

Loans are available from almost all life insurance policies.

Question 23

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 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

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

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

Question 32

Group life insurance is usually term life insurance.

Question 33

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

Question 34

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

Question 35

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

Question 36

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 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

Life insurance death benefits are not subject to income taxes.

Question 43

With traditional whole life policies sold by an agent,sales commissions and marketing expenses account for between 50% and 100% of the first year's premium.

Question 44

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

Question 45

All types of life insurance offer a cash surrender value.

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

Level premium term policies have become much more popular than annual renewable term policies in recent years.

Question 51

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

Question 52

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 53

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

Question 54

A guaranteed purchase option is when an insured sells an interest in the life insurance policy to an investor,who then becomes the policy's beneficiary.

Question 55

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

Question 56

Individually owned life insurance premiums are generally tax deductible.

Question 57

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

Question 58

A life insurance policy should contain a co-insurance clause.

Question 59

Multiple indemnity policies should be ignored as a source of funds when determining insurance needs because it offers no protection if the insured's death is due to natural causes.

Question 60

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

Question 61

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 62

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 63

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 64

Using the ____ approach is the most accurate method to determine life insurance needs.

A) human life value
B) multiple earnings
C) risk assessment
D) economic identification
E) needs

Question 65

Through insurance,society is able to

A) reduce costs.
B) increase rewards.
C) reduce financial risks and share losses.
D) change financial risks and reduce losses.
E) anticipate risks.

Question 66

Underwriting helps protect life insurance companies from which of the following:

A) major downturns in the economy
B) short-term shocks in the investment markets
C) adverse selection
D) having too many healthy people buy life insurance
E) shifts in the macro-social structure of the population

Question 67

The best way to handle risk is to

A) avoid risk
B) assume risk.
C) try to prevent losses.
D) transfer risk to an insurance company.
E) use some combination of these.

Question 68

Which of the following companies does NOT rate the financial strength of life insurance companies?

A) A.M.Best
B) Moody's
C) Duff & Phelps
D) Weiss
E) Welch's

Question 69

Insurance is a tool that can lessen ____ risk.

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

Question 70

With traditional whole life policies sold by an agent,sales commissions and marketing expenses account for between 20% to 25% of total premiums paid over the life of the policy.

Question 71

The underwriting function is designed to be sure that premiums are based on

A) income levels.
B) the value of the loss.
C) the value of the gain.
D) the chance of loss.
E) expense levels.

Question 72

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 73

The probability of a loss occurring can be reduced by

A) risk observance.
B) loss prevention.
C) risk assumption.
D) risk retention.
E) insurance.

Question 74

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 75

Underwriting is

A) selling insurance at a premium less than that of the competition.
B) payment of a claim.
C) a method for developing policy wording.
D) the determination of which exposures to insure.
E) none of these.

Question 76

The primary purpose of life insurance is to provide

A) financial security for dependents in the event of death.
B) protection from creditors and lawsuits.
C) tax-advantaged investments.
D) high-yield investments.
E) all of the above.

Question 77

The most valuable single technique in personal risk management to assist an individual in determining how much life insurance is needed is:

A) Computing the Human Life Value.
B) Using the probability of death each year,prevailing interest rates and assumed inflation rates to find the discounted present value of a future income stream.
C) Assessing the family's total economic needs and subtracting financial resources available to meet those needs.
D) Estimating the sum of money which,when paid in installments,will produce the same income as the person would have earned,after deducting assumed amounts for taxes and personal maintenance expenses.
E) Using a multiple of earnings adjusted for occupation.

Question 78

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 79

If a life insurance policy pays dividends,it is called:

A) universal life
B) participating
C) investment grade
D) paid-up
E) extended

Question 80

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