Deck 8: Insuring Your Life

Question 1

Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant.

Answer 1

True

Question 2

The needs analysis method is the most accurate approach to determining the proper amount of life insurance to buy.

Answer 2

True

Question 3

The three major categories of life insurance are term,straight life,and limited payment.

Answer 3

False

Question 4

Term insurance is generally the most economical form of life insurance for young families.

Question 5

The basic purpose of insurance is to protect you from the financial consequences of losing assets or income due to accident,illness,or death.

Question 6

The primary purpose of life insurance is to protect family members financially after one's death.

Question 7

The needs analysis method can be used to determine your life insurance requirements with a single step.

Question 8

Social security benefits are often available resources to the family after the death of a family member.

Question 9

Risk avoidance means asking an insurance company to take over the risk for a small payment (the premium).

Question 10

The life insurance needs of beneficiaries are secondary since most proceeds are paid to living policyholders.

Question 11

When you stop making premium payments on a whole life policy,the policy's cash value is forfeited.

Question 12

Credit life insurance is often a requirement of credit card issuers.

Question 13

Guaranteed renewable term insurance allows you to renew the policy for another term without qualifying medically.

Question 14

The right of the policyholder to the cash value of a whole life policy is a nonforfeiture right.

Question 15

Spreading risk among a large number of people is a major principle of insurance.

Question 16

Limited payment whole life insurance is a contract written for a given number of years after which the face value is automatically paid to the insured.

Question 17

Generally,the primary purpose of life insurance is to provide a tax-advantaged investment plan.

Question 18

Underwriters can predict whether or not you will suffer a loss this year.

Question 19

The need for additional life insurance can be determined by looking at the difference between available resources and family monetary needs.

Question 20

Life insurance needs change dramatically over one's lifetime.

Question 21

All types of life insurance offer a cash surrender value.

Question 22

Whole life policies typically provide a high investment rate of return.

Question 23

Loans are available from term life insurance policies.

Question 24

The returns on term life insurance policies receive favorable tax treatment.

Question 25

A variable life policy combines life insurance coverage with investment options.

Question 26

The life-income-with-period-certain option guarantees a specified number of settlement payments that are passable to secondary beneficiaries.

Question 27

Credit life insurance is sold in conjunction with installment loans.

Question 28

You may reinstate your lapsed life insurance policy without passing a physical examination.

Question 29

Universal life insurance is often suitable for single college students since the cost is quite low.

Question 30

If a named beneficiary does not survive an insured,the proceeds of the policy revert to the insurance company.

Question 31

One should typically name both primary and contingent beneficiaries for life insurance policies.

Question 32

Group life insurance is usually term life insurance.

Question 33

Like universal life insurance,variable life insurance provides a minimum guaranteed return.

Question 34

Unbundling in universal life insurance means that the cost of the insurance and savings elements are identified separately for the policy owner to see.

Question 35

Life insurance death benefits are,as a rule,subject to income taxes.

Question 36

A waiver-of-premium benefit excuses premium payments if the insured becomes totally and permanently disabled.

Question 37

An attractive feature of whole life insurance is the availability of loans from the cash value.

Question 38

The waiver-of-premium benefit excuses premium payment while the insured is experiencing short-term illness.

Question 39

Because premiums get higher as you age,it is probably advisable for you to buy life insurance at age 20 to save money whether or not you need the insurance then.

Question 40

Group life insurance is often provided as a fringe benefit by employers.

Question 41

Should the cash value grow to an unusually large amount,the amount of insurance coverage must be increased in order for the policy to retain its favorable tax treatment.

Question 42

With traditional whole life policies sold by an agent,sales commissions and marketing expenses account for between 100% and 150% of the first year's premium.

Question 43

Life insurance designed to pay the balance on a mortgage is an example of a good use decreasing term policy.

Question 44

If the insured dies during the grace period,the face amount of the policy less the unpaid premium is paid to the beneficiary.

Question 45

Low-load whole life policies grow cash values more quickly than traditional whole life policies.

Question 46

With low-load whole life policies,sales commissions and marketing expenses account for between 20% to 25% of total premiums paid over the life of the policy.

Question 47

Policy dividends paid on participating policies are a return of unused premium based upon the claims experience of the insurance company.

Question 48

The basic purpose of all insurance is to

A)protect your health.
B)protect you from losses.
C)supplement your income.
D)shield you from bad decisions.
E)do none of these.

Question 49

A life insurance policy's cash value may be collected by terminating the policy.

Question 50

Bobby Lee died of cancer.His $40,000 policy had a triple indemnity clause.His beneficiary will receive $120,000.

Question 51

Nearly all life insurance policies have a two-year suicide clause.

Question 52

The face value on a whole life policy is likely to change over time.

Question 53

A guaranteed purchase option is when an insured sells an interest in the life insurance policy to an investor,who then becomes the policy's beneficiary.

Question 54

Term life insurance becomes less expensive as you grow older.

Question 55

Life insurance policy loans are generally not taxable in the year taken and not deductible in the year repaid.

Question 56

Life insurance premiums are generally tax deductible by the insured.

Question 57

Cash value is an important component of whole life,universal life,and variable life but is never a component of term life insurance.

Question 58

If an insured commits suicide within two years of the policy's inception,the company will return the premiums paid.

Question 59

Level premium term policies have become much more popular than annual renewable term policies in recent years.

Question 60

It is advisable to purchase life insurance from a relatively small,newly formed company.

Question 61

Which of the following companies does not rate the financial strength of life insurance companies?

A)A.M. Best
B)Moody's
C)Standard & Poor's
D)Fitch
E)Welch's

Question 62

____ is not descriptive of an option of term life insurance.

A)Limited payment
B)Decreasing
C)Convertible
D)Renewable
E)Annual

Question 63

Which of the following types of policies is most likely to allow you to switch investments?

A)limited pay life
B)whole life
C)variable life
D)term life
E)adjustable whole life

Question 64

Through insurance,society is able to

A)reduce costs.
B)increase rewards.
C)reduce financial risks and share losses.
D)change financial risks and reduce losses.
E)anticipate risks.

Question 65

The primary purpose of life insurance is to provide

A)financial security for dependents in the event of death.
B)protection from creditors and lawsuits.
C)tax-advantaged investments.
D)high-yield investments.
E)all of the above.

Question 66

The underwriting function is designed to be sure that premiums are based on

A)income levels.
B)the value of the loss.
C)the value of the gain.
D)the chance of loss.
E)expense levels.

Question 67

Kurt purchased a policy with an initial premium of $3,000 and may elect how much he desires to pay in premiums from now on.He has purchased a face value of $100,000 and can accumulate cash value.What type of life insurance has Kurt purchased?

A)universal life
B)whole life
C)modified whole life
D)term life
E)adjustable whole life

Question 68

Underwriting is best described as

A)the process of deciding whom the company will insure and the applicable premiums it will charge.
B)actuarial science.
C)production-related activities performed primarily by agents in the field.
D)the process of developing pricing structures for insurance, often performed by an actuary.
E)a function most often performed by adjusters.

Question 69

Term life insurance is characterized by

A)level annual premiums throughout life.
B)premium amounts related to age.
C)inappropriateness for most person's life insurance needs.
D)non-convertibility.
E)cash value.

Question 70

In determining available resources that would be available after death,you would generally not consider

A)social security benefits.
B)earning potential of surviving children.
C)earning potential of surviving spouse.
D)savings.
E)market value of home in which survivors will reside.

Question 71

The purchase of insurance is a common form of which risk management technique:

A)risk retention
B)risk transfer
C)risk assumption
D)risk avoidance
E)loss control

Question 72

The most valuable single technique in determining how much life insurance is needed is:

A)Computing the Human Life Value.
B)Using the probability of death each year, prevailing interest rates, and assumed inflation rates to find the discounted present value of a future income stream.
C)Assessing the family's total economic needs and subtracting financial resources available to meet those needs.
D)Estimating the sum of money which, when paid in installments, will produce the same income as the person would have earned, after deducting assumed amounts for taxes and personal maintenance expenses.
E)Using a multiple of earnings adjusted for occupation.

Question 73

From the standpoint of the person buying insurance,the central purpose of insurance should be:

A)to collect for all accidental losses
B)to transfer risks of serious losses
C)to support the prevention of losses
D)to accumulate savings
E)to reduce payments for the most frequently occurring losses

Question 74

The best way to handle risk is to

A)avoid risk
B)assume risk.
C)try to prevent losses.
D)transfer risk to an insurance company.
E)use some combination of these.

Question 75

The needs analysis method of determining the amount of life insurance considers

A)needed income.
B)debt liquidation.
C)extra expenses if income producer dies.
D)special needs of dependents.
E)all of these.

Question 76

Insurance is a tool that can lessen ____ risk.

A)social
B)mental
C)economic
D)accident
E)exposure

Question 77

If a life insurance policy pays dividends,it is said to be

A)universal life
B)participating
C)investment grade
D)paid-up
E)extended

Question 78

Underwriting helps protect life insurance companies from which of the following?

A)Major downturns in the economy
B)Short-term shocks in the investment markets
C)Adverse selection
D)Having too many healthy people buy life insurance
E)Shifts in the macro-social structure of the population

Question 79

The probability of a loss occurring can be reduced by

A)risk observance.
B)loss prevention.
C)risk assumption.
D)risk retention.
E)insurance.

Question 80

The settlement option chosen by most beneficiaries is

A)lump sum.
B)interest only.
C)fixed amount.
D)fixed time.
E)life income.