Deck 13: Life Insurance

Question 1

Term life insurance is considered temporary insurance,since the policy is only in effect for a relatively short period of time.

Answer 1

True

Question 2

Universal life insurance is the same from one insurance company to another and is,therefore,the most common and popular form of life insurance.

Answer 2

False

Question 3

Whole life policies are the least expensive way to meet your life insurance needs.

Answer 3

False

Question 4

Term insurance will provide most of a young family's life insurance coverage due to its affordable cost.

Question 5

The beneficiaries of life insurance policies can only be family members or those directly impacted by a person's death.

Question 6

The problem with the cash value build up of a whole life insurance policy is that the money can only be used to pay off the policy or buy additional insurance.

Question 7

If no one else relies on your income,life insurance may not be necessary.

Question 8

If you want to borrow money from the cash value of your whole life policy,the interest rates are relatively high and the terms of the loan are quite strict.

Question 9

Whole life policies can be structured to provide a higher level of death benefits to beneficiaries in the early years of the policies or for the policies to be paid off in a certain time period,for example twenty years.

Question 10

During the time the policy is in effect,term life insurance has a good savings and investment component.

Question 11

A person's need for life insurance varies quite a bit over his or her lifetime.

Question 12

Life insurance may not be that important for a couple who both work full-time and who could each be self-sufficient without the other person's income.

Question 13

Life insurance is an indication of good financial planning,since it provides a payment to the policyholder upon his or her death.

Question 14

The only reason a person would buy life insurance is to eliminate or substantially reduce the financial consequences of that person's death by providing income to his or her dependents.

Question 15

Life insurance may be obtained through all of the following except

A)financial institutions.
B)private insurance companies.
C)the federal government.
D)your employer.

Question 16

Disadvantages of term insurance are that it increases in cost when you renew it and that it has no value when it matures or you discontinue your policy.

Question 17

Life insurance proceeds are not used to

A)pay off a mortgage.
B)support parents or other relatives.
C)fund the policyholder's retirement.
D)fund charities.

Question 18

Advantages of whole life insurance policies are that they provide long-term coverage,the rates are fixed,and they have a savings or cash value feature.

Question 19

A limited payment option on a whole life policy pays a smaller share of the policy face value to beneficiaries during the first five years of the policy.

Question 20

Life insurance is critical to protect a family's financial situation in the event that a breadwinner dies.

Question 21

A disadvantage of term insurance is that

A)it becomes more expensive when you renew it.
B)the cash value portion of the premium is larger than other forms.
C)you can only exchange your cash value for other insurance.
D)it is expensive early in life when you need it the most.

Question 22

If a policyholder with a universal life insurance policy skips a payment,then the policy

A)is terminated.
B)refunds the amount paid and terminates the policy.
C)uses an amount from savings to pay the premium.
D)has the premium increased.

Question 23

Whole life insurance has a ________ premium and has ________ cash value build up over the life of the policy.

A)fixed; no
B)variable; a
C)fixed; a
D)variable; no

Question 24

You are putting $100 a month into a passbook savings account to pay for your child's college education.You worry that if you die before you get enough saved,your child will not be able to get a college education.Which of the following types of life insurance would best fit your needs at the lowest cost?

A)Whole life
B)Universal life
C)Decreasing term
D)Variable life

Question 25

Universal life insurance is similar to whole life,but allows the policyholder more choices of how the savings portion of their premiums are invested.

Question 26

If you wanted to provide more coverage to your family early in life when they need it the most and decrease this amount of coverage in later years,yet continue to pay the same premiums,you should buy a(n)________ policy.

A)whole life
B)decreasing term
C)universal life
D)variable life

Question 27

________ insurance is life insurance that is provided over a specified time period and does not build cash value.

A)Term
B)Whole life
C)Universal life
D)Variable life

Question 28

A disadvantage of whole life policies is that

A)the premiums are not predictable.
B)they are much more expensive than term policies.
C)the face value of the policy can change over time.
D)the cash value is frozen and not available to policyholders.

Question 29

Which of the following is not an option as a way to use the cash value of your whole life policy?

A)Borrow the money at a low rate of interest
B)Use the proceeds to buy term insurance in the same value as your whole life policy
C)Have the insurance company invest your cash value in stocks or mutual funds of your choosing
D)Cancel the policy and get your cash value returned to you

Question 30

In comparison to an equivalent amount of term insurance,mortgage life insurance

A)costs less.
B)costs the same.
C)costs more.
D)the cost depends on the age of the house.

Question 31

The least expensive form of life insurance is

A)term.
B)whole life.
C)universal life.
D)variable life.

Question 32

Which of the following will not affect the premiums on a term life insurance policy?

A)Age of the policyholder
B)Percentage earned on savings portion of premium
C)Gender of the policyholder
D)Family medical history of the policyholder

Question 33

Which of the following is not a type of life insurance covered in the text?

A)Term
B)Dependent life
C)Whole life
D)Universal life

Question 34

The best substitute for mortgage insurance would be ________ insurance.

A)decreasing term
B)whole life
C)universal life
D)variable life

Question 35

A universal life policy gives policyholders the right to select their ________ that whole life policyholders do not have.

A)term
B)investments
C)savings
D)amount

Question 36

Which of the following is false concerning term life insurance?

A)The premiums increase as you renew the policy
B)It will expire and be of no value if not renewed
C)Has a cash value or savings feature as long as you keep the policy active
D)It provides the same amount of cash to a beneficiary as whole life policies

Question 37

Term life insurance is

A)often available in group policies through employers.
B)less expensive when you renew it.
C)pure insurance with no savings feature.
D)Both A and C

Question 38

Which of the following insurance is intended to provide a limited choice of investments and an insurance component in the event of death?

A)Whole life
B)Universal life
C)Term insurance
D)Mortgage life

Question 39

A disadvantage of variable life policies is that the cash value may actually decrease in value if stocks or other investments decline.

Question 40

________ life insurance can only by used to pay off a home in the event of the policyholder's death.

A)Mortgage
B)Decreasing-term
C)Universal life
D)Homeowner

Question 41

Which of the following policies will not give you a cash settlement if you terminate the policy?

A)Whole life
B)Universal life
C)Decreasing term life
D)Variable life

Question 42

Life insurance that provides insurance coverage for a specified term and also includes a savings option is called ________ insurance.

Question 43

The income method,basing life insurance needs on multiples of current income,is the easiest and most accurate method of determining how much life insurance a person should buy.

Question 44

Life insurance premiums are based on all of the following except

A)the amount of coverage you desire.
B)your age when you take out the policy.
C)your health habits.
D)the age of your children when the policy is taken out.

Question 45

A life insurance premium is ________ related to your age.

A)somewhat
B)occasionally
C)directly
D)inversely

Question 46

The premiums charged on life insurance will be higher if the individual is more likely to ________ in the near future.

Question 47

Which of the following factors does not affect your life insurance premiums?

A)Your gender
B)Your health
C)The cash value of the policy
D)Your level of education

Question 48

Using the budget method of determining life insurance needs,a family's future expected expenses is considered.

Question 49

What are the three most popular types of life insurance?

Question 50

The more savings a household has accumulated,the less life insurance they will need.

Question 51

If the premium on a term insurance policy is not paid by the due date,which of the following is true?

A)The policy is immediately terminated.
B)The death benefit of the policy is reduced by the amount of the premium owed.
C)The premium will be deducted from the cash value of the policy.
D)The policyholder is given a grace period to pay after which the policy will be terminated if premium is not paid.

Question 52

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

A)as a child.
B)when you are in college.
C)when you have dependents.
D)in your retirement.

Question 53

Your need for life insurance will last for 20 years.You also wish to save some money over that same time period.What kind of life insurance would fill this requirement?

A)Term
B)Decreasing term
C)Universal life
D)Deferred life insurance

Question 54

Which type of life insurance allows the policyholder to make his own individual investment decisions?

A)Whole life
B)Group life
C)Variable life
D)Deferred term life

Question 55

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

A)steadily increase.
B)steadily decrease.
C)stay the same.
D)peak and then decline.

Question 56

The cheapest form of life insurance that provides coverage for a specified time period is ________.

Question 57

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

A)Internet insurance companies.
B)mutual insurance companies.
C)employer-sponsored group insurance plans.
D)independent insurance agents.

Question 58

In using the Internet to price insurance,which of the following is not true?

A)It is fast and convenient.
B)It is usually more expensive.
C)There is less pressure.
D)You can compare rates among several companies at once.

Question 59

Of the following statements dealing with premiums on life insurance,which is not true?

A)Some factors that affect premiums are decided at birth.
B)Premiums will increase if you buy insurance when you are older.
C)The kind of policy you buy will determine your premiums.
D)There are very few things you can do to reduce your life insurance premiums.

Question 60

Which of the following insurance type is strictly intended to provide only insurance in the event of death?

A)Whole life
B)Term
C)Universal life
D)Variable life

Question 61

A person earning $75,000 per year has term life insurance at their place of employment equal to their annual income.Using the income method with a factor of 5,how much additional life insurance will s/he need?
(a)$375,000
(b)$300,000
(c)$75,000
(d)$50,000

Question 62

In the ________ method,life insurance is determined as a multiple of your annual income.

A)income
B)asset
C)balance sheet
D)budget

Question 63

The job marketability of your spouse

A)would be a factor considered in the budget method of determining life insurance needs.
B)is used in the income method of determining life insurance needs.
C)is really not that important in determining life insurance needs.
D)is the main factor in determining whether or not you even need life insurance.

Question 64

If you determine your life insurance needs by considering your annual living expenses,special future expenses,debt,job marketability of spouse,and value of existing savings,you are using the ________ method.

Question 65

Describe the two methods used to determine the life insurance amount.

Question 66

Using the income method,determine the amount of insurance an individual would need,employing a factor of 10,if their net income is $65,000,their assets total $280,000,their liabilities total $130,000,their two children's anticipated college education needs total $730,000,and their invalid mother's future nursing home expenses total $290,000.
(a)$2,850,000
(b)$1,500,000
(c)$650,000
(d)$730,000

Question 67

The budget method is based upon all of the following except

A)the amount of debt you owe.
B)your annual income.
C)the value of your existing savings.
D)special expenses you will need.

Question 68

The income method,used to calculate your life insurance coverage,multiplies your current annual income by

A)your expenses per month.
B)your number of dependents.
C)some arbitrary number,such as 10.
D)your life expectancy.

Question 69

The most accurate method of determining life insurance needs is

A)the income method.
B)the budget method.
C)subtracting your annual income from $1 million.
D)having enough insurance to provide $50,000 per year for 20 years.

Question 70

Sam figures it will take $250,000 invested at 6% 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 is $20,000.How much life insurance does he need using the budget method?

A)$190,000
B)$250,000
C)$270,000
D)$310,000

Question 71

All of the following are true of the income method of determining life insurance needs except it

A)is easy to use.
B)does not consider your age.
C)factors in the number of children in your family.
D)doesn't figure in savings or investments.

Question 72

Brad earns $50,000 per year as a manufacturer's rep and his wife,Nancy,earns $100,000 per year as an Oncologist.When they had children,Nancy left her practice to become a full-time mother.The family's expenses are $35,000 per year,which includes an amount being saved for the children's college education.Brad and Nancy have two children,ages 2 and 5.They receive an average return of 6 percent on their investments.Nancy has retained her active medical license and plans to return to work full-time when the children enter school.Using the budget method,how much life insurance should the family have in the event of Brad's death?
(a)$344,100
(b)$573,500
(c)$1,147,000
(d)Zero

Question 73

The constitutional beneficiary is the person who will receive the death benefits if the primary beneficiary is no longer living when the policyholder dies.

Question 74

Using the income method,if Jenny has an annual income of $50,000,debt of $20,000,and a factor of 10,then she should purchase ________ of life insurance.

A)$100,000
B)$200,000
C)$300,000
D)$500,000

Question 75

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

A)Your spouse graduates from college
B)You receive a large inheritance
C)Your only child graduates from college
D)You get married

Question 76

The income method of determining how much life insurance coverage you need is

A)based on future family expenses.
B)based on the age of your children.
C)based on the amount of your 401(k).
D)a good starting point.

Question 77

Name four factors that are utilized in the budget method of calculating life insurance.

Question 78

The easiest method of estimating your life insurance needs is the

A)life cycle approach.
B)budget approach.
C)financial approach.
D)income approach.

Question 79

A lump sum settlement option is usually the best choice,even if a beneficiary is not very good at managing sums of money.

Question 80

How much insurance would be needed in order to provide for a family for 20 years if the pretax income necessary to cover living expenses is $50,000 and the money can be invested at 6 percent?
(a)$573,500
(b)$1,000,000
(c)$833,333
(d)$2,100,000