Question 1

A universal life insurance policy is a type of cash-value insurance combining term insurance with a tax-deferred savings feature in a package in which both the premiums and the benefits are flexible.

Accepted Answer

A universal life insurance policy does combine term insurance with a tax-deferred savings feature, and both premiums and benefits are flexible.

Question 2

Why is it critically important to check out the financial health of a Life Insurance Company through a ratings company like A.M. Best before you purchase the insurance?

Accepted Answer

The answer of Why is it critically important to check...

Question 3

What factors should be considered when selecting a life insurance policy?

Accepted Answer

The answer of What factors should be considered when selecting...

Question 4

Sonny Coltraine was told by a friend that universal life is the best policy. He will find that

Accepted Answer

Universal life insurance policies typically have a tax-deferred savings feature, and the death benefits are not taxable income. Additionally, universal life policies offer flexibility in both death benefits and premiums. Therefore, options A, B, and D are all correct.

Question 5

The money that the policy holder is entitled to if the policy is terminated is known as the face value.

Accepted Answer

The money that the policyholder is entitled to if the policy is terminated is known as the cash surrender value, not the face value. The face value is the amount of coverage provided by the policy, payable upon the death of the insured or at the policy's maturity.

Question 6

A method of determining how much life insurance you require based on funds your family would require to maintain its lifestyle after your death is called the

Accepted Answer

The needs approach is the method used to determine how much life insurance you require based on the funds your family would require to maintain its lifestyle after your death. It takes into account your family's expenses and debts, as well as sources of income and assets, to arrive at a coverage amount that can help support your loved ones in the event of your unexpected passing. The other options (earnings multiple approach, cash liquidity approach, and funds analysis approach) do not specifically take into account the needs of your family and their ongoing expenses.

Question 7

You want to get a good buy on your life insurance contract. You find a book that compares insurance costs by incorporating the time value of money into its calculations. This method allows you to select wisely using the

Accepted Answer

The interest-adjusted net cost method takes into consideration the time value of money and provides a more accurate comparison of insurance costs in terms of their future values. This method allows you to make a wise selection while considering the financial impact of inflation and interest rates over time.

Question 8

With decreasing term insurance, each time the term insurance is renewed the premium decreases.

Accepted Answer

With decreasing term insurance, the face value of the policy remains the same but the premium increases as the insured ages.

Question 9

Term life insurance has a life insurance component and a savings plan.

Accepted Answer

Term life insurance only provides life insurance coverage and does not have a savings or investment component.

Question 10

Cash-value insurance is any policy that provides both a death benefit and an opportunity to accumulate cash value.

Accepted Answer

Cash-value insurance policies, such as whole life and universal life, offer both a death benefit and a savings component that grows over time and can be accessed by policyholders.

Question 11

Charles is the sole beneficiary of his late uncle's life insurance policy. The face value of the policy is $785,000. Charles has decided to accept annual annuity payments of $95,000. The interest rate on the policy is 5%. How many annual payments will Charles receive from this policy?

Accepted Answer

The number of payments can be calculated using the formula for the present value of an annuity. Solving for the number of payments with the given interest rate and payment amount results in approximately 10.92 years.

Question 12

Using the earnings multiple approach calculate how much life insurance Heather and Robert need to take out on Heather. She earns $80,000 and is 37 years old. They want coverage until she retires at age 67. Robert is sure he can get an annual rate of return on the policy settlement of 8%. They have no children.

Accepted Answer

The answer of Using the earnings multiple approach calculate how...

Question 13

Define policy rider and describe the purpose of the five basic ones.

Accepted Answer

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Question 14

You might consider another insurance agent if your agent uses the ________ method to analyze the costs of a policy.

Accepted Answer

The TNC (total needs calculation) method is outdated and can result in inadequate coverage or overpaying for coverage. A good insurance agent will use more modern methods such as IANC (identified needs analysis and calculation) or NCO (needs-based analysis and cost optimization) to provide accurate and comprehensive coverage recommendations. TLC (tender loving care) is not a method of insurance analysis.

Question 15

Joleene is a single parent with two children and earns $45,000 per year. She is purchasing term life insurance for 15 years until her youngest child is self supporting. Assuming her survivors can receive a 3% after-tax, inflation return on insurance proceeds, use the earnings multiple approach to calculate the face value of Joleen's policy.

Accepted Answer

The earnings multiple approach involves multiplying Joleene's annual income by a factor that considers her age, gender, health status, and other factors. Assuming she is in good health and the factor is 15, the face value of her policy would be:

$45,000 x 15 = $675,000

Next, we need to adjust for inflation and taxes. Assuming an inflation rate of 2% and a tax rate of 25%, the adjusted face value is:

$675,000 / (1 - 0.25) / (1 + 0.02)^15 = $397,548.04

Therefore, the best choice is C.

Question 16

The advantage of whole life insurance is that it is generally cheaper than term life insurance per dollar of coverage.

Accepted Answer

This statement is false. Whole life insurance generally has higher premiums than term life insurance because it provides coverage for the insured's entire life instead of just a specific term.

Question 17

It should be everyone's goal to become self-insured when it comes to Life insurance. Explain how and why this should be?

Accepted Answer

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Question 18

Billy's occupation is a potentially dangerous one - he is a skydiving instructor. His agent pointed out that the monthly premiums will be high. Billy wants a lot of value for his money. He could take advantage of ________ life insurance at this time to save money.

Accepted Answer

Term life insurance provides coverage for a specific period of time and is typically the most affordable option. This would allow Billy to have the necessary coverage during the high-risk time period of his occupation without paying excessively high premiums.

Question 19

Briefly explain the four common settlement options.

Accepted Answer

The answer of Briefly explain the four common settlement options....

Question 20

Your agent argues in favor of cash-value life insurance. You counteract with term to

Accepted Answer

Term life insurance is favored for its simplicity, affordability, and the ability to get a larger policy at a lower cost. It allows individuals to have significant coverage when it's most needed and potentially save and invest the difference in premiums compared to cash-value insurance, potentially leading to greater financial gain.

Quiz 9: Life and Health Insurance