Deck 8: Insuring Your Life

Question 1

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

Answer 1

False

Question 2

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 2

True

Question 3

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

Answer 3

True

Question 4

Life insurance needs change dramatically over one's lifetime.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

Avoiding alcoholic beverage while driving is an example of loss prevention.

Question 21

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

Question 22

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

Question 23

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

Question 24

A variable life policy is a policy in which the benefits are a function of the returns being generated on the investments selected by the policyholder.

Question 25

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

Question 26

Group life insurance is usually term life insurance.

Question 27

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

Question 28

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

Question 29

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 30

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

Question 31

Loans are available from almost all life insurance policies.

Question 32

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

Question 33

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 34

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

Question 35

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 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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 44

Policy dividends paid on participating policies reflect the difference between the premiums that are charged and the amount of premium necessary to fund the actual mortality experience of the company.

Question 45

The annual premium on a straight term policy can increase each year on an annual renewable term policy or remain level throughout the policy period on a level premium term policy.

Question 46

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

Question 47

With traditional whole life policies sold by an agent,sales commissions and marketing expenses can increase the costs of a fully loaded policy.

Question 48

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

Question 49

Whole life insurance death benefits are not subject to income taxes.

Question 50

A universal life insurance policy generally does not provide for a tax-sheltered savings platform.

Question 51

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

Question 52

Policy loans are secured by the cash value of the life insurance policy.

Question 53

All types of life insurance offer a cash surrender value.

Question 54

In a decreasing term policy,a level of protection is constant throughout all periods of coverage,while the level of premiums reduce consistently with each passing year.

Question 55

An insured may borrow or withdraw the cash value from the insurer when need for insurance protection has not yet lapsed.

Question 56

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

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

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

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

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 61

If a life insurance policy pays dividends,it is called a _____ policy.

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

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

The needs approach to determining the amount of life insurance considers a family's:

A) gross income.
B) ability to pay off debts.
C) special financial needs.
D) financial liquidity.
E) all of these

Question 64

Insurance underwriting is best described as:

A) the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.
B) a set of activities used to identify the risk and rewards of investing the insured's funds on marketable securities.
C) production-related activities performed primarily by agents on the field.
D) process of developing pricing structures for insurance,often performed by an actuary.
E) a function most often performed by acturials.

Question 65

The basic purpose of insurance is to:

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

Question 66

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

A) A.M.Best
B) Moody's
C) Fitch
D) Weiss
E) Welch's

Question 67

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 68

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 69

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 70

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 71

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 72

.Which of the following risk management techniques is the purchase of insurance a common form of?

A) Risk retention
B) Risk transfer
C) Risk assumption
D) Risk avoidance
E) Loss control

Question 73

With traditional universal life policies sold by an agent,it can be difficult to evaluate true cost at time of purchase as the insurance carrier may levy costly fees and charges.

Question 74

Insurance is a tool that can lessen _____ risk.

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

Question 75

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 76

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 analysis

Question 77

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 make profit out of uncertain future events.
D) to accumulate savings.
E) to reduce payments for the most frequently occurring losses.

Question 78

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 79

In determining available resources to offset economic needs,you would generally not consider:

A) social security benefits.
B) earning potential of financially independent children.
C) earning potential of surviving spouse.
D) savings.
E) employer-provided group life insurance.

Question 80

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