Question 1

Which of the following statements about re-entry term insurance is true?

Accepted Answer

Re-entry term insurance allows an insured to renew their term policy for a specified number of years at a lower premium rate, providing they can demonstrate continued insurability. This differs from standard term insurance, where renewal premiums are typically subject to re-underwriting and subsequent premium increases based on changes in the insured's health status. Options A and B are not true for re-entry term insurance, and D refers to a different type of insurance altogether.

Question 2

Which of the following is a noneconomic cost associated with premature death?

Accepted Answer

Loss of a parental role model is a noneconomic cost associated with premature death.

Question 3

The human life value is defined as the

Accepted Answer

The human life value is calculated as the present value of the family's share of the deceased breadwinner's future earnings. It takes into account the income the breadwinner would have earned to support their family if they had not passed away. Option A looks at the present value of the breadwinner's future gross income, which does not take into account the family's share. Option B looks at the future value of the breadwinner's past earnings, which does not make sense. Option D looks at the future value of the family's share, which is incorrect as the life value is usually calculated at the time of the breadwinner's death. Therefore, option C is the correct answer.

Question 4

The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the

Accepted Answer

The period during which a surviving spouse is not eligible for Social Security benefits is referred to as the "blackout period." This is because there is a gap between when the surviving spouse's own benefits end and when survivor benefits begin. During this time, the surviving spouse must rely on other sources of income.

Question 5

Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are)true?
I.It involves an analysis of various family needs which must be met if a family breadwinner dies.
II.Its use is appropriate only if a person currently has no life insurance protection.

Accepted Answer

The needs approach does involve an analysis of various family needs, such as income replacement, debt repayment, and funding future expenses like education or retirement. However, it can be used even if a person currently has some life insurance coverage, as it may be necessary to adjust the coverage amount based on changing needs over time.

Question 6

Which of the following pieces of information is needed to calculate a person's human life value?

Accepted Answer

Human life value is calculated based on the person's income and expenses, including the cost of self-maintenance, to determine the economic value of their life.

Question 7

Sarah is using the needs approach to determine how much life insurance to buy.Her cash needs are $30,000;her income needs are $140,000;and special needs are $100,000.Sarah has the following assets: $20,000 in bank accounts,$30,000 in retirement plans,and $40,000 in investment accounts.Sarah owns no individual life insurance.She is covered by a $50,000 group life insurance policy through her employer.Based on this information,how much additional life insurance should Sarah purchase?

Accepted Answer

The answer of Sarah is using the needs approach to...

Question 8

What is the length of the readjustment period which is considered when the needs approach is used to determine the amount of life insurance to own?

Accepted Answer

The readjustment period considered when using the needs approach to determine life insurance needs is typically 1 to 2 years. This allows for the family to adjust to the loss of income and to make necessary changes in their lifestyle and financial situation. The other options provided (A, C, and D) are not accurate descriptions of the readjustment period in this approach.

Question 9

Bill is attempting to determine how much life insurance to purchase.He has two dependent children and his wife does not work outside of the home.An advisor suggested that Bill should consider Social Security benefits when doing his life insurance planning.One concern in this regard is the period after Social Security benefits to a widow terminate until they resume again.This period is called the

Accepted Answer

The period after Social Security benefits to a widow terminate until they resume again is called the blackout period.

Question 10

Jessica is an agent for LMN Life Insurance Company.She met with Brad,who was interested in purchasing life insurance.Jessica explained the various uses of life insurance,including income for Brad's wife during the 1- or 2-year period following Brad's death.This period is known as the

Accepted Answer

The period immediately following the death of a spouse, which is often characterized by a need for financial support to adjust to the loss of income, is known as the readjustment period. This term accurately describes the time during which Brad's wife would need income support to adjust to life without Brad's financial contribution.

Question 11

All of the following are defects which limit the usefulness of the human life value approach in determining the correct amount of life insurance to purchase EXCEPT

Accepted Answer

All of the listed choices except D are defects which limit the usefulness of the human life value approach. Ignoring earnings during the individual's productive lifetime would not limit the usefulness of the approach, as it is a key component in calculating the appropriate amount of life insurance needed.

Question 12

When using the needs approach,several "special needs" should be considered.One special need is money to cover unexpected events,such as major car repairs,dental bills,or home repairs.Money set aside for this purpose is called a(n)

Accepted Answer

The description given in the question fits best with an emergency fund, which is a reserve of money set aside to cover unexpected expenses. The other options do not accurately describe the purpose of the reserve fund.

Question 13

To calculate a human life value,it is necessary to deduct certain costs from a person's average annual earnings.These costs include

Accepted Answer

Income taxes should be deducted from a person's average annual earnings in order to calculate their human life value. Funeral costs, investment income, and pension benefits after retirement are not typically deducted in this calculation.

Question 14

Julian,age 45,would like to determine how much life insurance to purchase using the human life value approach.He assumes his average annual earnings over the next 20 years will be $40,000.Of this amount,$20,000 is available annually for the support of his family.Julian will generate this income for 20 more years and he believes that 5 percent is the appropriate interest (discount)rate.The present value of one dollar payable for 20 years at a discount rate of 5 percent is $12.46.What is Julian's human life value?

Accepted Answer

To calculate Julian's human life value using the human life value approach, we first need to determine his total earnings over the next 20 years, which is $40,000 * 20 = $800,000. We then subtract the amount he needs for his own support, which is $20,000 * 20 = $400,000. This leaves us with an income of $20,000 per year that Julian generates specifically for the support of his family. We then calculate the present value of this income stream by multiplying $20,000 by the present value factor of $12.46, which gives us a human life value of $249,200 (rounded to the nearest hundred dollars). Therefore, the best choice is B.

Question 15

Which of the following is a cost/expense that an estate clearance fund is designed to pay?

Accepted Answer

Estate clearance funds are specifically designed to cover immediate expenses following an individual's death, such as burial or funeral costs.

Question 16

Which of the following statements about premature death is (are)true?
I.From an economic standpoint,premature means death before a specified age,such as 65.
II.The economic problem of problem of premature death in the U.S.has declined substantially over time.

Accepted Answer

The answer of Which of the following statements about premature...

Question 17

Which of the following types of families is likely to have the least need for a large amount of life insurance?

Accepted Answer

A single person family typically has no dependents and therefore may not require a large amount of life insurance.

Question 18

Tom and Nancy Boyle provide financial support for their two children.In addition,they provide financial support for Tom's aged father and Nancy's aged mother.The Boyle family can be described as a

Accepted Answer

The family can be described as a "sandwiched family" because they are providing financial support for both their children and their aging parents, placing them in the middle or "sandwiched" between the needs of two generations.

Question 19

Which of the following statements regarding convertible term insurance is true?

Accepted Answer

The original-age conversion method allows the policyholder to pay a premium based on their age when the term policy was first issued, rather than their current age at the time of conversion. This results in lower annual premiums for the cash value coverage compared to using the attained-age method, where premiums are based on the policyholder's age at the time of conversion.

Question 20

Under the needs approach,when is the dependency period of a surviving spouse assumed to end?

Accepted Answer

Under the needs approach, the dependency period of a surviving spouse is assumed to end when the youngest child reaches age 18, as it is presumed that the surviving spouse would have had enough time to secure their financial future and become self-sufficient by that time.

Quiz 11: Life Insurance