Question 1

Beth purchased a $50,000 nonparticipating whole life insurance policy.The annual premium was $1,278.The cash value of the policy after 10 years will be $13,740.The future value of $1 deposited at the start of the year for 10 years,assuming 5 percent interest,is $13.207.If the premiums were invested at 5 percent interest for 10 years,the premiums would grow to $16,878.55.Assuming 5 percent interest,what is the surrender cost of this policy,per thousand per year,over the first 10 years the policy is in force?

Accepted Answer

The answer of Beth purchased a $50,000 nonparticipating whole life...

Question 2

Which statement is true regarding using interest-adjusted cost data and purchasing life insurance?

Accepted Answer

Small variations in cost indices are often considered negligible when comparing the costs of life insurance policies. These indices take into account the time value of money, and minor differences may not significantly impact the overall cost or value of a policy to the consumer.

Question 3

The gross premium is defined as

Accepted Answer

The gross premium is the total amount of premium paid by the policyholder. It is composed of two parts: net premium and loading allowance. The net premium is the actuarial estimate of the expected claims and expenses, while the loading allowance is the additional amount added to the net premium to cover expenses and provide a profit margin for the insurer. Therefore, the correct answer is A: the net premium plus the loading allowance.

Question 4

Beth purchased a $50,000 nonparticipating whole life insurance policy.The annual premium was $1,278.The cash value of the policy after 10 years will be $13,740.The future value of $1 deposited at the start of the year for 10 years,assuming 5 percent interest,is $13.207.What is the traditional net cost of this policy,per thousand per year,over the first 10 years the policy is in force?

Accepted Answer

The traditional net cost per thousand per year can be calculated using the following formula:
Traditional net cost = Total premium paid - Total dividends received + Increase in cash value / Face amount of policy / Number of years

Total premium paid = $1,278 x 10 = $12,780
Increase in cash value = $13,740 - $0 (since no dividends were received) = $13,740
Face amount of policy = $50,000
Number of years = 10

Total dividend received = 0

Using the formula:
Traditional net cost = ($12,780 - $0 + $13,740) / $50,000 / 10
Traditional net cost = $1.92 per thousand per year

Therefore, the best choice is (C) -$1.92.

Question 5

Which of the following statements is (are)true about the federal estate tax?
I.The gross estate can be reduced by a number of deductions.
II.If the person who died had any ownership interest in a life insurance policy at the time of death,the proceeds are included in the gross estate for federal estate tax purposes.

Accepted Answer

I is true because there are various deductions allowed in calculating the federal estate tax, such as charitable contributions, administrative expenses, and mortgages. 
II is also true because if the deceased owned a life insurance policy on their own life, the death benefit is included in their gross estate for estate tax purposes. However, if the policy is owned by someone else, the death benefit is not included in the gross estate.

Question 6

Each of the following helps to reduce federal estate taxes EXCEPT

Accepted Answer

Life insurance policies in which the deceased had an incidents of ownership at the time of death are included in the federal estate and are therefore subject to estate taxes. The marital deduction, unified tax credit, and certain expenses can all help to reduce federal estate taxes.

Question 7

The difference between the present value of future benefits payable under a life insurance policy and the present value of net premiums for the policy is the policy's

Accepted Answer

The present value of future benefits payable under a life insurance policy minus the present value of net premiums is the policy's prospective reserve. This reserve represents the amount of money the insurer needs to set aside to guarantee the payment of future death benefits on outstanding policies.

Question 8

Lisa does not want her life insurance policy included in her gross estate when she dies.Lisa can remove the life insurance policy from her estate if she does which of the following more than 3 years before she dies?

Accepted Answer

Making an absolute assignment of the policy to someone else is the only option that removes the life insurance policy from Lisa's estate. The other options will not remove the policy from her estate for estate tax purposes.

Question 9

To level a net single premium (NSP),the NSP is divided by

Accepted Answer

The net single premium is leveled by dividing it by the present value of a life annuity due of $1 for the premium payment period, which accounts for the timing of payments starting immediately.

Question 10

Paul is shopping for a life insurance policy.An agent asked Paul if he would like to purchase a participating policy.What is a "participating" policy?

Accepted Answer

A participating policy is a life insurance policy that pays dividends to its policyholders. These dividends are a share of the insurance company's profits and can be used to reduce premiums, increase the policy's cash value, or be paid out in cash.

Question 11

The policy reserve at the end of any given policy year is called the

Accepted Answer

The terminal reserve is the reserve amount at the end of a policy year. It is the amount that must be set aside to guarantee payment of claims in the future.

Question 12

Beth purchased a $50,000 nonparticipating whole life insurance policy.The annual premium was $1,278.The cash value of the policy after 10 years will be $13,740.The future value of $1 deposited at the start of the year for 10 years,assuming 5 percent interest,is $13.207.If the premiums were invested at 5 percent interest for 10 years,the premiums would grow to $16,878.55.Assuming 5 percent interest,what is the net payment cost of this policy,per thousand per year,over the first 10 years the policy is in force?

Accepted Answer

The answer of Beth purchased a $50,000 nonparticipating whole life...

Question 13

The National Association of Insurance Commissioners (NAIC)has drafted a "Life Insurance Policy Illustration" model law that most states have adopted.Which of the following statements concerning this model law is (are)true?
I.The policy illustration must include a narrative summary describing the basic characteristics of the policy.
II.The policy illustration must include a numeric summary showing the premium outlay,the value of the accumulation account,the cash surrender value,and the death benefit.

Accepted Answer

Both statements are true. The NAIC's "Life Insurance Policy Illustration" model law requires both a narrative summary and a numeric summary in the policy illustration. The narrative summary should provide a brief description of the policy, including the death benefit, premium outlay, surrender values, and other important policy features. The numeric summary should show the policy values for selected policy years, and must include the premium outlay, accumulation account values, cash surrender value, and death benefit.

Question 14

Brad owns a cash value life insurance policy.Last year,the cash value increased by $300.Brad received $100 in policyowner dividends on the policy last year.Brad was the beneficiary named in his grandmother's $50,000 life insurance policy.When she died this past year,Brad received $50,000.How much taxable income relating to life insurance must Brad report for federal income tax purposes?

Accepted Answer

The cash value increase and policyowner dividends are not taxable income. The $50,000 life insurance benefit is also not taxable income under federal income tax laws. Therefore, Brad has $0 taxable income relating to life insurance.

Question 15

Actuaries at Term Life Insurance Company calculated the net single premium per thousand for a five-year term policy for a man age 32 to be $5.04.To calculate the net level premium for this policy,the net single premium should be

Accepted Answer

To calculate the net level premium, the net single premium needs to be divided by the present value life annuity due factor for $1 for five years. This is because a level premium is paid annually throughout the term, and the present value of these payments must be equal to the net single premium. Since the policyholder pays the premium at the beginning of each year (annuity due), the present value life annuity due factor should be used.

Question 16

Carl and Carol Williams,a married couple,are doing some estate planning.Upon his death,Carl plans to leave $1,000,000 in property to his wife.This amount will reduce the value of Carl's gross estate and will be taxed later when Carol dies.This reduction of the gross estate is called the

Accepted Answer

The reduction in the gross estate through leaving property to a surviving spouse is called the marital deduction. This deduction allows for the unlimited transfer of assets from one spouse to another without incurring any estate or gift taxes. Therefore, Carl's plan to leave $1,000,000 in property to his wife will not be taxed in his estate and will not reduce the value of his gross estate for tax purposes. It will only be taxed later when Carol dies, and therefore is not referred to as the taxable estate or unified tax credit. The capital gains deduction is a separate deduction for capital gains taxes and is not related to estate planning.

Question 17

Purposes of life insurance policy reserves include which of the following?
I.Legal test of the insurer's solvency
II.Formal recognition of the obligation to pay future claims

Accepted Answer

Life insurance policy reserves serve multiple purposes, including serving as a legal test of the insurer's solvency and representing the formal recognition of the obligation to pay future claims. Therefore, both options I and II are correct.

Question 18

Life insurance policy reserves

Accepted Answer

Life insurance policy reserves are the funds set aside by insurance companies to cover future claims by policyholders. These reserves are considered a major liability for insurance companies, as they represent a promise to pay out benefits to policyholders and their beneficiaries in the future.

Question 19

Which of the following statements is (are)true with regard to using interest-adjusted cost data when shopping for life insurance?
I.Cost indexes apply to new policies and should not be used to determine whether to replace a policy.
II.Cost indexes should only be used to compare similar plans of insurance.

Accepted Answer

Both statements are true. Interest-adjusted cost data should be used to compare policies only if they are similar, and it should not be used to determine whether to replace an existing policy with a new one. This is because the cost index only reflects the cost of insurance and does not take into account other factors such as cash value, surrender charges, and policy loans.

Question 20

All of the following statements about the income tax treatment of individually-purchased life insurance are true EXCEPT

Accepted Answer

Premiums paid for individual life insurance are not a tax deductible expense, unlike premiums paid for group term life insurance which may be tax-deductible for the employer.

Quiz 13: Buying Life Insurance