Question 1

Which of the following insurance policies continues for a stated period of time with the premiums increasing with the age of the insured?

Accepted Answer

Term insurance is a type of life insurance policy that provides coverage for a set period of time or until a specified age, after which the policy expires. The premiums increase with the age of the insured. Double indemnity is an insurance policy that pays out double the face amount if the insured dies due to an accident. An annuity contract is a financial product that provides a regular stream of income for a certain period of time or for the rest of the policyholder's life. Comprehensive insurance is a type of insurance policy that covers various types of risks, such as property damage, liability, theft, and fire. None of these policies match the description of a policy that continues for a stated period of time with premiums increasing with age other than term insurance.

Question 2

Which type of automobile insurance covers the cost of damage caused by fire, theft, or vandalism?

Accepted Answer

Comprehensive insurance covers damage caused by fire, theft, or vandalism. Liability insurance covers damages you cause to other people and their property, collision insurance covers damages to your own car in the event of a collision, and uninsured motorist insurance covers you in the event of an accident with an uninsured driver.

Question 3

Which of the following does NOT act as a revocation of a will?

Accepted Answer

Creating a codicil does not act as a revocation of a will; instead, it is an amendment or addition to an existing will.

Question 4

Which of the following is NOT required to create a valid trust?

Accepted Answer

Witnesses are not required to create a valid trust, but they may be helpful in providing evidence of the grantor's intent and capacity at the time of creating the trust. The legal age and sound mind of the grantor, a beneficiary or beneficiaries, and property transferred to the trust are all essential elements for creating a valid trust.

Question 5

Under the Uniform Anatomical Gift Act,

Accepted Answer

According to the Uniform Anatomical Gift Act, an effective donation may be made by an individual in a will or on a witnessed organ-donation card or by family members after the person's death as long as the person did not indicate a desire not to be a donor. Option A is incorrect because the provision in a will takes effect only after probate, which may take time and render the organs unsuitable for transplantation. Option B is incorrect because many states do not recognize organ donation cards as legally binding documents. Option C is incorrect because family members can still make the decision to donate the decedent's organs even if the person did not make an affirmative indication of the desire to be a donor during their lifetime, but their decision may be superseded by the decedent's prior wishes.

Question 6

A child who is left nothing under the parent's will is called a

Accepted Answer

A child who is not mentioned in a parent's will is called a pretermitted child, meaning they were not born or adopted at the time the parent's will was created. Beneficiary refers to someone who is named in the will to receive property or assets. Decedent refers to the person who has died and whose estate is being distributed. Settlor refers to the person who creates a trust.

Question 7

Darcy buys a life insurance policy on her own life, under which she pays the annual premiums. The insurance is issued for a specific period, but is renewable for similar periods. Darcy is covered only as long as she makes the payments. There is no cash value portion to the policy. Darcy probably owns

Accepted Answer

The description given matches with the features of a term life insurance policy. Term life insurance provides coverage for a specific period of time and has no cash value. The policyholder pays the premiums and is covered only for as long as they continue to make the payments. Renewable term life insurance allows the policy to be renewed for similar periods.

Question 8

In order to travel extensively and not worry about handling her affairs, Lee transfers most of her assets into a trust, with her bank serving as trustee. She has created a(n) ________ trust.

Accepted Answer

An inter vivos trust, also known as a living trust, is created during the grantor's lifetime and allows the grantor to transfer assets into the trust and still retain some level of control. In this case, Lee is creating an inter vivos trust to transfer most of her assets into it and have her bank serve as the trustee. This allows her to travel extensively without worrying about handling her affairs.

Question 9

Pamela applies for a life insurance policy with Forever Young Insurance Company. When completing the application form about past surgeries, Pamela forgot about a past outpatient surgery when she had an infected hang-nail removed and her toe treated. One year after issuing the policy, Pamela died suddenly from a brain aneurysm. Forever Young denies payment under the policy based on misrepresentation. If Pamela's sister, Paula, sues Forever Young, she will most likely

Accepted Answer

Pamela's omission about a minor outpatient surgery for an infected hang-nail, which is unrelated to her cause of death (brain aneurysm), would likely be considered immaterial to the insurance coverage. Misrepresentations must be material, meaning they would have influenced the insurer's decision to issue the policy or the terms of the policy, to justify denial of a claim. Since the omitted surgery had no bearing on the risk of insuring Pamela's life for the cause of her death, Paula would likely win the lawsuit against Forever Young for denying the claim based on this misrepresentation.

Question 10

A short document acknowledging receipt of an application and premium for an insurance policy is called a(n)

Accepted Answer

A binder is a short document that acknowledges receipt of an application and premium for an insurance policy. It serves as temporary insurance coverage until the policy is issued. A codicil is a document that modifies a will. A power of attorney allows someone to act on behalf of another person in legal and financial matters. A proxy is a person who is authorized to act on behalf of another person in a voting process.

Question 11

The person who receives the proceeds from an insurance policy is the

Accepted Answer

The beneficiary is the person who receives the proceeds from an insurance policy in the event of the insured person's death or other covered event. The owner of the policy may be someone different from the beneficiary. The testator is someone who has written a will, which is not necessarily related to insurance policies. The insurer is the company that issues the insurance policy.

Question 12

Which of the following is true about wills?

Accepted Answer

A will can be amended by execution of a codicil, which is a document that modifies or revokes specific provisions of the will.

Question 13

How many witnesses are required for a nuncupative will to be valid?

Accepted Answer

Two witnesses are typically required for a nuncupative (oral) will to be considered valid, although specific requirements can vary by jurisdiction.

Question 14

The cheapest life insurance option is

Accepted Answer

Term insurance is generally the cheapest form of life insurance because it offers protection for a specific period of time (the term) without building cash value, unlike whole life insurance.

Question 15

Dr. Gavornne advises his very ill patients to prepare a living will. The purpose of a living will is to

Accepted Answer

A living will is a legal document that expresses a person's wishes regarding medical treatment in the event that they become unable to make decisions for themselves. It typically includes instructions to withhold or withdraw life-sustaining treatments that would only prolong the dying process. It is, therefore, intended to express a desire not to have extreme medical treatment that would prolong their lives.

Question 16

Abraham has just purchased his first car. His bank, First State Bank, loaned him the money to buy the car and has required him to purchase insurance to protect the car as the collateral for the loan. Which basic types of coverage should Abraham buy to satisfy the bank requirement and to best protect himself from the risks of operating an automobile?

Accepted Answer

Collision coverage protects Abraham's car if he gets into an accident with another car, object, or if the car rolls over. Comprehensive coverage provides protection from damage or loss due to theft, fire, vandalism, weather events, or hitting an animal. Uninsured motorist coverage protects Abraham in case he is in an accident with someone who does not have insurance. Liability coverage is required by law and protects Abraham if he causes an accident that damages someone else's property or injures someone. Therefore, it is best for Abraham to have all four types of coverage.

Question 17

The major disadvantage of a trust is

Accepted Answer

Trusts often involve significant expense in their creation and administration.

Question 18

Traditional health insurance plans are

Accepted Answer

Traditional health insurance plans are also known as fee-for-service plans, where the insurer pays for the services provided to the policyholder, rather than managing their healthcare or paying a set amount per month regardless of service usage, as with managed care or HMO plans. Value-based plans, on the other hand, focus on incentivizing healthcare providers to deliver higher-quality care at a lower cost.

Question 19

Liability policies, such as personal liability, professional malpractice, or business liability insurance, do NOT protect the insured against

Accepted Answer

Liability policies do not cover intentional harm caused by an insured. This includes intentionally causing injury or damage, as well as intentional acts of discrimination or other wrongdoing.

Question 20

If Walter becomes incompetent to manage his affairs,

Accepted Answer

If Walter appointed a person in a durable power of attorney with a springing power, that person can manage his affairs upon his incompetence. This is the most common and preferred option for managing affairs when someone becomes incompetent as it allows for continuity and avoids court involvement.

Quiz 44: Planning for the Future: Wills, Trusts and Insurance