Question 1

In life insurance policy, if the insured dies during the grace period, the amount of the premiums past due need not be paid and the entire face amount of the policy will be paid to the beneficiary.

Accepted Answer

If the insured dies during the grace period, the amount of the premiums past due is deducted from the face amount of the policy that is paid to the beneficiary.

Question 2

The difference between the reserve at any point in time and the face amount of the policy is known as the protection element for the insurer, and as the net amount at risk for the insured.

Accepted Answer

The protection element is the same as the net amount at risk, both terms refer to the difference between the reserve and the face amount of the policy, but they are not distinguished between the insurer and the insured.

Question 3

With universal, current assumption, and variable universal life insurance policies, the policyowner may discontinue premium payments at any time without lapsing the policy, as long as the surrender value is sufficient to cover the next deduction for the cost of insurance and expenses.

Accepted Answer

These types of life insurance policies have a cash value component that can be used to cover the cost of insurance and expenses if the policyowner decides to stop paying premiums, as long as the cash surrender value is sufficient to cover these costs.

Question 4

In variable life insurance, the assumed rate of return is generally a rate necessary to maintain the level of cash values found in a traditional fixed-dollar straight life contract.

Accepted Answer

In variable life insurance, the assumed rate of return is used to project cash values similar to those in traditional fixed-dollar life insurance, but actual returns can vary based on investment performance.

Question 5

The accumulation value and cash value of current assumption whole life insurance policies are determined in the same manner as for variable life policies.

Accepted Answer

The accumulation value in current assumption whole life insurance policies is determined by the insurer based on the policy's performance, including interest rates and mortality costs, which can change over time but within certain guarantees. In contrast, the cash value of variable life policies is directly tied to the performance of underlying investment options chosen by the policyholder, making them subject to market fluctuations without guaranteed minimums.

Question 6

The current mortality rate, in universal life, can be any amount determined periodically by the insurer as long as the charge does not exceed the guaranteed maximum mortality rate specified in the contract.

Accepted Answer

The mortality rate in a universal life insurance policy can indeed be adjusted periodically by the insurer, but it cannot exceed the maximum rate that is specified in the contract. This allows the insurer some flexibility in adjusting rates based on current mortality experience, while also providing the policyholder with a level of protection against excessive rate increases.

Question 7

Single premium life policies are mainly sold as business insurance where there is a need to pay fully for a policy by a certain date, such as the time an employee will retire.

Accepted Answer

The answer of Single premium life policies are mainly sold...

Question 8

The amount at risk for the insurer (that is, the protection element) increases as the cash value element of a whole life insurance policy increases with age.

Accepted Answer

The amount at risk for the insurer decreases as the cash value element of a whole life insurance policy increases because the death benefit remains constant, and the insurer's liability is reduced by the amount of accumulated cash value.

Question 9

Some life insurance policies include dividends, and these policyholder dividends are paid after federal income taxation.

Accepted Answer

Policyholder dividends from a life insurance policy are typically considered a return of premium and are not subject to federal income taxation.

Question 10

In a one-year term life insurance, an insurer promises to pay $100,000 at the death of each insured who dies during the year.If past experience indicates that 0.1 percent of a group of young people will die during the year, one death may be expected for every 1,000 persons in the group.If a group of 300,000 is insured, what is the premium amount that the insurer must collect per policyowner? (Assume that premiums are based only on morality)

Accepted Answer

The expected number of deaths is 0.1% of 300,000, which is 300. The insurer needs to collect $100,000 for each expected death, totaling $30,000,000. Dividing this by 300,000 policyholders gives a premium of $100 per policyholder.

Question 11

The premiums of life insurance policies increase as the insured grows older.

Accepted Answer

Life insurance premiums typically increase as the insured person grows older due to the higher risk of mortality associated with aging, making the policy more expensive to maintain.

Question 12

Type A death benefit option in a universal life policy is intended to produce an increasing death benefit.

Accepted Answer

Type A death benefit option in a universal life policy maintains a level death benefit, where the death benefit does not increase over time.

Question 13

Universal life insurance contracts were introduced during a period of historically high, double-digit interest rates.

Accepted Answer

Universal life insurance was introduced in the early 1980s, a period characterized by historically high, double-digit interest rates, to offer more flexibility and potentially higher returns on the cash value component compared to traditional whole life insurance policies.

Question 14

The theory of insurance is that the losses of the few can be paid for by relatively small contributions from the many.

Accepted Answer

Insurance operates on the principle of risk pooling, where many individuals pay premiums into a common fund, which is then used to cover the losses experienced by a few members of the group. This allows for the distribution of risk across many people, making it manageable for each individual.

Question 15

The renewability option gives the policyholder the right to renew the life insurance policy for a specified number of additional periods of protection, at a predetermined schedule of premium rates, without new evidence of insurability.

Accepted Answer

The renewability option in a life insurance policy allows the policyholder to renew their coverage for additional periods without having to prove they are still insurable, typically at predetermined premium rates. This feature is designed to provide the policyholder with continued protection even if their health has declined.

Question 16

The purpose of the grace period is to prevent unintentional lapses of life insurance policies.

Accepted Answer

The grace period in life insurance policies is designed to give policyholders extra time to pay their premium without losing their coverage, thus preventing unintentional lapses of the policy due to short-term financial difficulties or oversight.

Question 17

Mortgage protection insurance is a decreasing term insurance.

Accepted Answer

Mortgage protection insurance is designed to pay off the remaining mortgage balance upon the death of the borrower, and since the mortgage balance decreases over time, the coverage amount decreases as well, which is characteristic of decreasing term insurance.

Question 18

The changes in basic amount provision specifies the conditions under which a policyowner can change the total face amount of the policy.Any requested increases in the face amount of the policy takes place on a monthly anniversary date.

Accepted Answer

The changes in the basic amount provision typically allow the policyowner to adjust the face amount of the policy, but any increases or decreases usually take effect on the policy's anniversary date, not on a monthly basis.

Question 19

The most common type of group life insurance offered by employers is yearly renewable term coverage.

Accepted Answer

Yearly renewable term coverage is the most common type of group life insurance offered by employers because it provides coverage for a one-year period with the option for renewal each year, making it flexible and cost-effective for both employers and employees.

Question 20

Current assumption whole life policy is sometimes referred to as interest-sensitive whole life policy because of its participatory investment feature.

Accepted Answer

Current assumption whole life policy is indeed sometimes referred to as interest-sensitive whole life policy because its cash value can be affected by the insurer's current interest rate, making it somewhat participatory in nature with respect to investments.

Quiz 19: Mortality Risk Management: Individual Life Insurance and Group Life Insurance