Question 1

The best description for a "participating policy" is that the owner is

Accepted Answer

The answer of The best description for a "participating policy"...

Question 2

Low-cost life insurance, often available without a physical exam, is generally offered by

Accepted Answer

Employer-sponsored group insurance plans often offer low-cost life insurance options to employees, sometimes without the need for a physical exam, as part of their benefits package. This is because the risk is spread out among a large group of people, allowing for lower premiums.

Question 3

A lump sum insurance settlement would be most appropriate for

Accepted Answer

A lump sum insurance settlement would be most appropriate for a disciplined beneficiary because they can use the money to invest or save for the future. A surviving spouse with small children might benefit from a structured settlement that provides regular income to support the family over time. Parents living in a nursing home and a former spouse are not necessarily the most appropriate candidates for a lump sum insurance settlement.

Question 4

Which of the following is an important rider for a young person who is not sure of their future life insurance needs?

Accepted Answer

Guaranteed insurability rider allows the policyholder to purchase additional coverage at a later date regardless of their health status or other factors. This is particularly important for young people who may not be sure of their future life insurance needs. It provides flexibility and allows them to increase their coverage as their needs change without having to go through the underwriting process again. Waiver of premium, accidental death, and term riders are all important in their own right, but do not provide the same level of flexibility or future-proofing as the guaranteed insurability rider.

Question 5

The beneficiary of a policy is

Accepted Answer

The beneficiary is the person or entity designated to receive the proceeds or settlement from an insurance policy upon the occurrence of the insured event, such as the death of the life insured.

Question 6

Jane and Vitorio are both professionals who can easily live on either of their incomes , if there were no debt payments. They have a combined net worth of $950 000. They have debts in the amount of a $250 000 mortgage and car loans of $85 000 on a BMW and a Jaguar. In addition, they pay off their credit cards off each month, usually around $21 000. If anything should happen to either one of them, they want to leave their family debt-free. How much life insurance should they consider?

Accepted Answer

The answer of Jane and Vitorio are both professionals who...

Question 7

If you have maximized your RRSP contributions, have positive cash flow and wish to maximize the transfer of wealth to your beneficiaries, which would be the most efficient choice of insurance?

Accepted Answer

The answer of If you have maximized your RRSP contributions,...

Question 8

Which of the following will increase your need for life insurance?

Accepted Answer

Having a child increases your financial responsibility and dependence on your income, which in turn increases the need for life insurance. The other choices may have financial implications but do not necessarily require additional life insurance.

Question 9

When calculating the amount of life insurance premiums, underwriters of life insurance would not be concerned with

Accepted Answer

The age of your children when the policy is taken out is not a factor that underwriters would consider when calculating the amount of life insurance premiums. They would consider factors such as the amount of coverage desired, age of the policyholder, and their health habits to determine the risk and cost of insuring them.

Question 10

Which considerations would be irrelevant when considering whether to cancel an old life insurance policy and start a new one?

Accepted Answer

The grace period is a provision that allows a policyholder to make a late payment without a lapse in coverage. It is irrelevant when considering whether to cancel an old life insurance policy and start a new one as it relates to the payment schedule rather than the policy features or benefits. The suicide clause, premium schedule, and incontestability dates are factors that should be considered when making such a decision.

Question 11

Bart is not married, has an annual income of $60 000, debt of $20 000, net worth of $580 000, and a factor of 8. How much insurance should he buy using the income method?

Accepted Answer

The income method suggests buying insurance equal to the annual income multiplied by a factor. Here, $60,000 * 8 = $480,000.

Question 12

The term grace period is very important to an insurance policy because

Accepted Answer

The grace period in an insurance policy refers to the period in which benefits are still payable even if premiums are in arrears. This helps policyholders avoid a total loss of coverage if they miss a payment deadline. Option A is incorrect because living benefits are referred to as "accelerated benefits" instead of grace period benefits. Option B is incorrect because renewal typically happens before the policy term expires, not after. Option C is incorrect because a lapsed policy cannot have a grace period.

Question 13

The main difference between whole life and universal life policies is

Accepted Answer

In universal life insurance, the policyholder can adjust premiums and death benefits and has some control over the investment component, whereas in whole life insurance, the insurance company manages the investments and offers fixed premiums and death benefits.

Question 14

Sam's annual income is $50 000 and he figures it will take $250 000 invested at 6 percent to provide suitable income to his family for 12 years. He would also like to have $40 000 set aside to educate his two children. Sam's current savings are $20 000. How much life insurance does he need using the budget method?

Accepted Answer

The answer of Sam's annual income is $50 000 and...

Question 15

If your life follows the pattern of college-marriage-kids-retirement, your need for life insurance will

Accepted Answer

As you move through the stages of college, marriage, and kids, your need for life insurance will increase, as you have more financial obligations and dependents. However, as you enter retirement, your need for life insurance may decline, as your dependents become financially independent and your savings and investments have grown. Therefore, the need for life insurance will rise, peak, and then decline.

Question 16

The best time to buy a whole life insurance policy in terms of expense is

Accepted Answer

The best time to buy a whole life insurance policy in terms of expense is when you are young, preferably as a child, as the premium cost is lower due to the longer life expectancy. The premium cost will increase as you age and if you develop health issues, making it more expensive to purchase.

Question 17

Whole life insurance proceeds can be used to

Accepted Answer

Whole life insurance is designed to provide coverage for the entirety of an individual's life, with the added benefit of accumulating cash value over time. This cash value can be utilized to help fund the policyholder's retirement. It is not typically used to renew a mortgage or fund an RRSP plan, although it could potentially be used to buy past service on a pension. However, using the cash value for retirement is generally considered the best choice, as it aligns with the original purpose of the policy.

Question 18

Why is reinstatement an important privilege?

Accepted Answer

The answer of Why is reinstatement an important privilege?
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Question 19

One advantage of purchasing universal life insurance is

Accepted Answer

One advantage of purchasing universal life insurance is tax-sheltered investment growth inside the policy. This means that the investment growth within the policy is not subject to taxes until it is withdrawn, allowing for potentially higher returns over time.

Question 20

Which of the following factors is most important in determining your life insurance premiums?

Accepted Answer

Your health is the most important factor in determining your life insurance premiums as it directly affects your risk of death or illness. Insurance companies assess your health by looking at factors such as your medical history, current health status, and lifestyle habits. The other factors listed may be considered but have less impact on your premiums compared to your health.

Quiz 10: Protecting Your Wealth - Health and Life Insurance