Question 1

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 suggesting that a family will need 70% of the salary for seven years to adjust financially after a salary earner's death.

Question 2

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, as long as premiums are paid, and also accumulates cash value over time. This makes it a good choice for those who want lifelong coverage and a savings component.

Question 3

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 is typically more expensive than term life insurance, and the premiums do not increase with age. Whether or not it is the best choice depends on the individual's financial situation and insurance needs.

Question 4

Fundamentally,group insurance is ____________ insurance.

Accepted Answer

Group insurance is typically term life insurance, meaning it provides coverage for a specified period of time and does not accumulate cash value. Whole life, ordinary life, permanent, and universal life insurance are all forms of individual life insurance that provide more long-term coverage and often include investment or savings components.

Question 5

Most participating policies are sold by:

Accepted Answer

Most participating policies, which allow policyholders to receive dividends from the insurer's profits, are typically sold by mutual life insurance companies. These companies are owned by the policyholders themselves, who can participate in the profits through dividends.

Question 6

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 (the term), such as 10, 20, or 30 years. Once the term ends, the policy expires and there is no longer any coverage. This is in contrast to whole life insurance, which provides coverage for the insured person's entire life and is meant to last until they die.

Question 7

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 for flexible premium payments, allowing the policyholder to pay premiums at any time in virtually any amount as long as certain minimums are met. Whole life and ordinary life have set premium payments, while adjustable life and variable life have more limited flexibility in premium payments.

Question 8

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

Accepted Answer

Term insurance provides protection for a specified period of time, usually ranging from 1 to 30 years. Premiums are typically lower than other types of life insurance because this type of policy does not build cash value or include investment components. Premiums may increase if the policy is renewed or if the insured's age increases, but they remain constant during the initial term of the policy. Term insurance may be a good choice for those who need coverage for a specific period of time, such as paying off a mortgage or supporting children until they are financially independent.

Question 9

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

Accepted Answer

Universal life insurance policies combine term insurance with a savings component that can earn interest over time. This allows policyholders to build cash value within the policy while also providing a death benefit.

Question 10

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 11

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 makes a one-time lump sum payment for the policy coverage, and no further premiums are required. This can be beneficial for those who want to ensure their policy is fully paid and do not want to worry about making regular premium payments.

Question 12

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 term "fluctuate according to the yields earned by a separate fund" indicates a variable life insurance policy.

Question 13

Your annual income is $100,000.You have a spouse,two kids,a dog and a mortgage - a typical family.What is your life insurance need based on the easy method?

Accepted Answer

According to the easy method, your life insurance need should be 10-12 times your annual income plus $100,000 per child for education expenses, plus any outstanding debts like a mortgage. 
So, 10-12 times $100,000 is $1,000,000 to $1,200,000. Adding $100,000 per child (two kids in this case) is $200,000. Adding any outstanding debts like a mortgage will increase the need even further. 
Thus, the best choice based on this method is option B, which is $490,000, and it is the closest to the midpoint of the range.

Question 14

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 is designed to insure a large number of persons under the terms of a single policy without requiring medical examinations. This type of plan is commonly offered as a benefit by employers to their employees as part of a group benefits package.

Question 15

Some experts claim that credit life insurance policies are:

Accepted Answer

Credit life insurance policies are typically more expensive and provide less coverage than traditional term life insurance. Additionally, the beneficiaries of credit life insurance policies are often the creditors themselves, rather than the policyholder's family members. As a result, many experts consider them to be a rip off.

Question 16

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 is the most appropriate for Jeff Willis as it takes into account his large family and potentially high levels of debt. This method considers the family's entire financial situation, including living expenses, expected future expenses such as college tuition, outstanding debts, and any existing savings or insurance policies.

Question 17

Which statement is correct regarding stock life insurance companies?

Accepted Answer

Stock life insurance companies generally sell nonparticipating (non par) policies, which means the policyholders do not participate in the profits or losses of the company. Participating policies are sold by mutual life insurance companies. Stock companies are owned by shareholders, not policyholders. The statement about charging higher premiums than mutual companies is not necessarily true and depends on various factors.

Question 18

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

Accepted Answer

The answer of Who is likely to have the least...

Question 19

Which statement is correct regarding mutual insurance companies?

Accepted Answer

Mutual insurance companies are owned by their policyholders, not stockholders. They typically offer participating policies, which means that policyholders may receive dividends if the company profits. Premiums may or may not be lower than those offered by stock companies, as this varies by insurer and product. Mutual companies may declare policy dividends to their policyholders. Therefore, the correct statement regarding mutual insurance companies is that they may refund part of the premium to the policyholders.

Question 20

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

Limited payment policy is a type of life insurance plan that requires the policyholder to pay premiums for a stipulated period, usually 20 or 30 years, or until they reach a specified age. After that, the policy remains in force without the need for further premium payments. This type of plan is suitable for individuals who want to ensure that their life insurance coverage remains in force while limiting the overall cost of the policy.

Quiz 12: Life Insurance