Question 1

Subject to certain minimums, which life insurance is designed to let you pay premiums at any time in virtually any amount?

Accepted Answer

Universal life insurance allows the policyholder to pay premiums at any time and in any amount, as long as certain minimums are met. This is different from whole life and ordinary life insurance, which have fixed premiums, and adjustable and variable life insurance, which have more restrictions on premium payments.

Question 2

Who is likely to have the least need for life insurance?

Accepted Answer

A single person living with parents typically has fewer financial dependents and obligations, reducing the immediate need for life insurance compared to others with dependents or upcoming financial responsibilities.

Question 3

Some experts claim that credit life insurance policies are:

Accepted Answer

Many experts claim that credit life insurance policies are a rip-off since they offer expensive premiums for relatively small benefits. The amount paid for the policy decreases with the loan balance, but the premiums remain the same. In contrast, term life insurance policies offer more extensive coverage for lower premiums, making them a better investment.

Question 4

The insurance industry rule of thumb that a typical family will need 70% of salary for seven years in order to adjust for the financial consequences of a salary earner's death is known as which of the following estimation methods?

Accepted Answer

The "Easy method" is a rule of thumb in the insurance industry that suggests a family will need 70% of the salary for seven years to adjust financially after the death of a salary earner.

Question 5

Which statement is correct regarding mutual insurance companies?

Accepted Answer

Mutual insurance companies are owned by their policyholders and therefore refund a portion of the premiums back to the policyholders as policy dividends or refunds. This is a distinct feature of mutual insurance companies and is not typically offered by stock insurance companies.

Question 6

Which type of life insurance policy combines term insurance and investment elements?

Accepted Answer

Universal life insurance policies combine the flexibility of term insurance with the investment elements of whole life insurance. The policyholder can adjust the premium payments and the death benefit as their needs change over time. Additionally, the policy has a cash value component that earns interest, which can be used to pay premiums or taken out as a loan.

Question 7

Which statement is correct regarding stock life insurance companies?

Accepted Answer

Stock companies generally sell nonparticipating policies, which means that policyholders do not participate in the profits or losses of the company. This is because stock companies are owned by shareholders, not policyholders. Participating policies are typically sold by mutual insurance companies, which are owned by policyholders. Choice A is incorrect because stock companies sell nonparticipating policies, not participating policies. Choice B is incorrect because it is not true that stock companies always charge higher premiums than mutual companies. Choice C is incorrect because, as mentioned earlier, policyholders do not participate in the profits or losses of a stock company. Choice E is incorrect because stock companies are owned by shareholders, not policyholders.

Question 8

Most participating policies are sold by:

Accepted Answer

Participating policies are mostly sold by mutual life insurance companies, as they are owned by their policyholders and share their profits with them through dividends. Federal government agencies, state insurance commissioners, stock life insurance companies, and investment banks do not typically offer participating policies.

Question 9

A plan that insures a large number of persons under the terms of a single policy without requiring medical examinations is called a(n) ____________ life insurance policy plan.

Accepted Answer

A group life insurance policy plan provides coverage for a large number of persons under the terms of a single policy without requiring medical examinations. Group plans are typically offered as a benefit through an employer, association, or organization.

Question 10

Which of the following statements is true about group life insurance?

Accepted Answer

Group life insurance typically charges a standard cost per $1,000 of coverage for each employee, regardless of their individual age or health status. This is one of the advantages of group life insurance - it can be a good value for younger employees or those with pre-existing health conditions who may not be able to afford an individual policy. Choices A, C, D, and E are all false statements.

Question 11

The cash values of a(an) ____________ life insurance policy fluctuate according to the yields earned by a separate fund, which can be a stock fund, a money market fund, or a long-term fund.

Accepted Answer

The description matches that of a variable life insurance policy, which allows the policy owner to invest the cash value portion of the policy into various funds, thus affecting its value. The other options listed are not accurate descriptions of the policy type described.

Question 12

The most common type of permanent life insurance is called:

Accepted Answer

Whole life insurance is the most common type of permanent life insurance. It provides coverage for the entire life of the insured and includes a savings component known as cash value, which grows over time and can be accessed by the policyholder for various purposes. Whole life insurance is considered a reliable and stable form of life insurance, making it a popular option for those who want a guaranteed death benefit and a savings element.

Question 13

Which statement is correct about whole life insurance?

Accepted Answer

Whole life insurance builds up cash value over time, which can be borrowed against or used to pay premiums in the future. However, it tends to be more expensive than term life insurance, and the premiums may remain level or increase with age. Whether it is the best choice for an individual depends on their specific financial situation and insurance needs.

Question 14

Which type of life insurance plan requires you to pay premiums for a stipulated period, usually 20 or 30 years, or until you reach a specified age?

Accepted Answer

The type of life insurance plan that requires you to pay premiums for a stipulated period, usually 20 or 30 years, or until you reach a specified age is a Limited payment policy. This type of policy allows you to have a fixed premium payment period, after which you are fully covered for the rest of your life without any additional premiums required. It is a good choice for individuals who want to have a guaranteed life insurance coverage, but do not want to pay premiums for the entire duration of their policy.

Question 15

Which one of the following statements correctly applies to term insurance?

Accepted Answer

Term insurance provides protection for a specific period of time, typically anywhere from one year to 30 years. Premiums are typically lower for term insurance than for other types of life insurance because it does not build cash value or provide lifelong coverage. The investment performance is not relevant to term insurance as it is purely a type of life insurance.

Question 16

Which of the following is (are) false?

Accepted Answer

Stock companies typically do not pay policy dividends, as they are owned by shareholders, not policyholders.

Question 17

Jeff Willis has five kids and more debt than the average family. What method would probably be the best method for him to use to calculate his insurance needs?

Accepted Answer

The family need method takes into account the number of dependents and the amount of debt to calculate the appropriate amount of insurance coverage needed. Given Jeff's situation of having five kids and more debt than the average family, this method would provide a more accurate calculation of his insurance needs.

Question 18

Fundamentally, group insurance is ____________ insurance.

Accepted Answer

Group insurance is typically provided through an employer or organization for a specific period of time, usually the length of the individual's employment or membership in the organization. This aligns with the definition of term insurance, which provides coverage for a specified period of time and does not accumulate cash value.

Question 19

A special form of the limited payment plan is the ____________ premium policy.

Accepted Answer

A single premium policy is a type of limited payment plan where the policyholder pays the entire premium in a lump sum upfront, and then the policy remains in force for a specified period of time without any further premium payments required. This is different from double, simple, and compound premium policies which involve ongoing premium payments. Equitable is not a type of limited payment plan.

Question 20

Which type of insurance is sometimes called temporary insurance?

Accepted Answer

Term insurance is sometimes called temporary insurance because it provides coverage for a specific period of time, such as 10 or 20 years. After the term ends, the policy expires and there is no coverage unless it is renewed.

Quiz 12: Life Insurance