Question 1

Term insurance is normally purchased by people between the ages of…?

Accepted Answer

Term insurance is typically purchased by people between the ages of 25 and 65. This is because younger people may not yet have dependents that they need to insure, while older people may have already accumulated enough assets to not need as much coverage. Additionally, the cost of term insurance increases as a person ages, so it may become less affordable for those over 65.

Question 2

The excess interest provision in life insurance means that the cash value will increase:

Accepted Answer

The excess interest provision allows the cash value of a life insurance policy to increase faster than the guaranteed rate if the insurer actually earns a greater return than the guaranteed rate. This means that if the insurer's investments perform well, the policyholder will receive a higher rate of return on their cash value than originally guaranteed.

Question 3

Which of the following is a permanent need for purchasing life insurance?

Accepted Answer

Funeral expenses are a permanent need for purchasing life insurance as these expenses will always exist regardless of the individual's life stage or circumstances. Funding a child's college education, paying off a mortgage loan, and funding the readjustment period for a spouse are all temporary needs that will eventually be fulfilled.

Question 4

When an ordinary life insurance policy becomes payable as a death claim,the beneficiary is entitled to the:

Accepted Answer

The beneficiary is entitled to the face amount of the policy, which is the amount of the death benefit stated in the policy contract. The cash surrender value and reserve value are only relevant if the policy is surrendered or cancelled, but not in the event of a death claim. The cash value may be paid out if the policy includes a cash value provision and the insured dies while the policy is in force, but this is in addition to the face amount and not instead of it.

Question 5

If a term life policy is convertible,the insured has the option to convert it to:

Accepted Answer

The insured should convert the term life policy to a permanent form of coverage, such as whole life or universal life, to ensure continued coverage and potential cash value accumulation. Converting to cash or an annuity would terminate the policy, and converting to a decreasing term policy would result in decreased coverage over time.

Question 6

Which of the following is true?

Accepted Answer

Whole life insurance is a type of permanent life insurance that provides coverage for the lifetime of the insured. It offers both a death benefit and a cash value component that builds over time. This means that the policy can provide funds whether the insured dies or survives the policy period. Options A, B, and C are not true. Term life insurance is most suitable for temporary needs, decreasing term insurance is useful when the insured's debt is decreasing, and whole life insurance's cash value may not refund nearly all premiums paid.

Question 7

A convertible term policy allows the insured to convert a term policy into any other type of policy including a different type of term policy.

Accepted Answer

A convertible term policy allows the insured to convert a term policy into a permanent policy, not into another type of term policy.

Question 8

Industrial life insurance is:

Accepted Answer

Industrial life insurance is generally more costly than ordinary life insurance because it is sold in small amounts and often involves higher administrative costs relative to the coverage amount.

Question 9

All of the following statements about term insurance policies are true except:

Accepted Answer

Term insurance policies do not have a cash value that can be taken by the policy owner if they wish to terminate coverage early. Term policies only provide pure death benefit protection for a specified term and do not accumulate any cash value.

Question 10

After taking an introductory course in insurance,your parents ask you what type of life insurance policy they should purchase to get permanent death protection with the option to pay more premiums some years,and less in other years. They also want a minimum guaranteed rate of return on their cash value. Which type of life insurance will you recommend?

Accepted Answer

The type of life insurance policy that fits the criteria mentioned is Universal life. Universal life provides permanent death protection with the option to pay more premiums some years and less in other years. It also has a minimum guaranteed rate of return on the cash value. Whole life also provides permanent death protection, but its premiums are usually fixed and do not allow for changing payment amounts. Term life does not provide permanent death protection and does not accrue cash value. Variable life insurance provides death protection but has no guaranteed rate of return on cash value, as the cash value is invested in stocks and other securities.

Question 11

Whole life insurance policy sales have declined in recent years. Which of the following is NOT a reason for this decline?

Accepted Answer

The answer of Whole life insurance policy sales have declined...

Question 12

MaryJo owns a whole-life insurance policy on her own life. She has accumulated $49,000 of cash value in the policy. Which of the following statements is/are true regarding this policy and the options MaryJo has?
I.She can withdraw the entire $40,000 at any time and forfeit her death protection
II.She can borrow the $40,000,but will lose all her death protection until the loan is paid back
III.If MaryJo dies tomorrow with no policy loan outstanding,her beneficiary will receive the face value of the insurance policy,while the $40,000 in cash value becomes a survivorship benefit for other insureds

Accepted Answer

Statement I is true as MaryJo can withdraw the entire cash value at any time but, in doing so, she will forfeit her death protection. Statement II is also true as MaryJo can borrow the cash value, but she will lose all death protection until the loan is paid back. Statement III is true, as upon MaryJo's death, her beneficiary will receive the face value of the policy, and the $49,000 cash value will become part of the policy's death benefit, providing a survivorship benefit for other insureds. So, the correct choice is D.

Question 13

After taking an introductory course in insurance,your parents ask you what type of life insurance policy they should purchase if they want permanent death protection and the potential for earning a relatively high rate of return on their cash value. Which type of life insurance would you suggest?

Accepted Answer

Variable life insurance offers permanent death protection and also allows the policyholder to invest the cash value in a range of investment options such as stocks and mutual funds. This potential for a high rate of return makes it a good choice for those seeking both life insurance coverage and investment opportunities.

Question 14

Term life insurance has significantly increased in popularity. Why?

Accepted Answer

The lower rates and availability of tax-advantaged savings plans are reasons why term life insurance has become more popular. This allows individuals to have coverage at a lower cost while also saving for their future.

Question 15

Your best friend discovers you just took an introductory insurance course. He asks you what type of life insurance policy he should buy,given that he is 28 years old. Which type of life insurance should you recommend?

Accepted Answer

Given the information provided, it's impossible to recommend a specific type of life insurance without knowing more about your friend's financial situation, goals, health, and other personal factors.

Question 16

Which of the following is true with regard to term life insurance contracts?

Accepted Answer

Term insurance provides temporary protection for a specified period of time, usually ranging from 1 to 30 years. It does not accumulate cash value and premiums are typically cheaper than permanent life insurance policies. Options A, B, and C are false statements.

Question 17

Universal life was created in response to which of the following?

Accepted Answer

Universal life insurance was created in response to high-yield, low-risk investment opportunities that made traditional whole life insurance less attractive, as it offered more flexibility and the potential for higher returns.

Question 18

After taking an introductory course in insurance,your parents ask you what type of life insurance policy they should purchase to get permanent death protection with a fixed premium amount,a guaranteed rate of return on their cash value,and a level death benefit. Which type of life insurance will you recommend?

Accepted Answer

Whole life insurance is a type of permanent life insurance that provides death protection with a fixed premium amount, a guaranteed rate of return on the cash value, and a level death benefit. The policy accumulates cash value over time, and the policy owner can borrow against it or withdraw it, although it may reduce the death benefit. It offers the policy owner both protection and savings components, and can be a good choice for people looking for long-term coverage with a fixed premium amount.

Question 19

Which of the following is false with respect to universal life insurance (ULI)?

Accepted Answer

Universal life insurance is not necessarily cheaper than ordinary whole life insurance; its cost can vary based on interest rates and other factors.

Question 20

Why have term life insurance rates decreased in recent years?

Accepted Answer

Term life insurance rates are often based on actuarial tables that take into account mortality rates. Since human longevity has improved in recent years, life insurance companies have had to pay out fewer death benefits, resulting in lower premiums for policyholders.

Quiz 13: Life Insurance Policies