Question 1

The human life value is defined as the

Accepted Answer

The human life value is the present value of a deceased breadwinner's future earnings that would have been available to the family. It takes into account factors such as inflation, taxes, and potential investments that the individual would have made. Option (A) only refers to the future gross income, ignoring present value. Option (B) refers to the future value of past earnings, which is not relevant. Option (D) refers to the future value of the family's share, ignoring the present value. Therefore, the correct answer is (C).

Question 2

To calculate a human life value, it is necessary to deduct certain costs from a person's average annual earnings. These costs include

Accepted Answer

The human life value calculation is typically based on a person's income, and income taxes are a necessary deduction from that income. Funeral costs, investment income, and pension benefits are not deducted from a person's earnings during their lifetime.

Question 3

What is the length of the readjustment period which is considered when the needs approach is used to determine the amount of life insurance to own?

Accepted Answer

The needs approach considers the readjustment period to be 1 to 2 years, which means the amount of life insurance needed should be enough to cover the family's expenses during that period while they adjust to their new financial situation without the deceased's income. Choices A, C, and D are not correct as they do not match the typical readjustment period considered in the needs approach.

Question 4

Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are) true?
I.It involves an analysis of various family needs which must be met if a family breadwinner dies.
II.Its use is appropriate only if a person currently has no life insurance protection.

Accepted Answer

Statement I is true as the needs approach involves an analysis of various family needs which must be met if a family breadwinner dies. Statement II is false as the use of the needs approach is appropriate regardless of whether a person currently has life insurance protection.

Question 5

Tom and Nancy Boyle provide financial support for their two children. In addition, they provide financial support for Tom's aged father and Nancy's aged mother. The Boyle family can be described as a

Accepted Answer

The Boyle family is considered a sandwiched family because they are providing financial support for both their children and their aged parents. This creates a "sandwich" where they are caring for both generations at the same time.

Question 6

The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the

Accepted Answer

The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the blackout period. This is a period of time between the death of the spouse and when the survivor is eligible to start collecting benefits. During this time, the surviving spouse will not receive any Social Security benefits.

Question 7

When using the needs approach, several "special needs" should be considered. One special need is money to cover unexpected events, such as major car repairs, dental bills, or home repairs. Money set aside for this purpose is called a(n)

Accepted Answer

An emergency fund is specifically designed to cover unexpected events or emergencies, such as car repairs or dental bills. A mortgage redemption fund is typically used to pay off a mortgage, an estate clearance fund is used to settle an estate after someone passes away, and a readjustment period fund is not a commonly used financial term.

Question 8

Julian, age 45, would like to determine how much life insurance to purchase using the human life value approach. He assumes his average annual earnings over the next 20 years will be $40,000. Of this amount, $20,000 is available annually for the support of his family. Julian will generate this income for 20 more years and he believes that 5 percent is the appropriate interest (discount) rate. The present value of one dollar payable for 20 years at a discount rate of 5 percent is $12.46. What is Julian's human life value?

Accepted Answer

To calculate Julian's human life value using the human life value approach, we first need to determine his total earnings over the next 20 years, which is $40,000 * 20 = $800,000. We then subtract the amount he needs for his own support, which is $20,000 * 20 = $400,000. This leaves us with an income of $20,000 per year that Julian generates specifically for the support of his family. We then calculate the present value of this income stream by multiplying $20,000 by the present value factor of $12.46, which gives us a human life value of $249,200 (rounded to the nearest hundred dollars). Therefore, the best choice is B.

Question 9

Which of the following is a noneconomic cost associated with premature death?

Accepted Answer

Loss of a parental role model is a noneconomic cost associated with premature death, as it affects the emotional and psychological well-being of the surviving family members, especially children who lose a parent at an early age. It cannot be quantified in monetary terms. The other options (A, C, D) are economic costs associated with premature death, as they involve a monetary value.

Question 10

Jessica is an agent for LMN Life Insurance Company. She met with Brad, who was interested in purchasing life insurance. Jessica explained the various uses of life insurance, including income for Brad's wife during the 1- or 2-year period following Brad's death. This period is known as the

Accepted Answer

The period immediately following the death of a spouse, which is often characterized by a need for financial support to adjust to the loss of income, is known as the readjustment period. This term accurately describes the time during which Brad's wife would need income support to adjust to life without Brad's financial contribution.

Question 11

Which of the following is a cost/expense that an estate clearance fund is designed to pay?

Accepted Answer

An estate clearance fund is designed to pay for expenses related to the deceased individual's estate, including funeral or burial expenses. Option B, retiring the mortgage, is typically done through estate assets or by selling the property. Option C, education costs, would not be covered by an estate clearance fund unless it was explicitly designated in the deceased individual's will. Option D, providing income for the widow(er) during the readjustment period, would typically be covered by life insurance or other assets designated for the surviving spouse's care.

Question 12

Which of the following types of families is likely to have the least need for a large amount of life insurance?

Accepted Answer

A single person family typically has no dependents or beneficiaries, so the need for a large amount of life insurance is minimal.

Question 13

Which of the following statements about re-entry term insurance is true?

Accepted Answer

Re-entry term insurance allows the insured to renew the coverage at the end of the term for another term, but with a new premium rate based on their current age and health status. If the insured can demonstrate insurability, they may be able to renew the coverage at a lower premium rate than if they had to purchase a new policy altogether. A and B are incorrect because re-entry term insurance does have limits on the number of renewals and does not offer a refund of premiums paid. D is also incorrect because re-entry term insurance is a type of term insurance, not a way to reinstate a lapsed permanent life insurance policy.

Question 14

Bill is attempting to determine how much life insurance to purchase. He has two dependent children and his wife does not work outside of the home. An advisor suggested that Bill should consider Social Security benefits when doing his life insurance planning. One concern in this regard is the period after Social Security benefits to a widow terminate until they resume again. This period is called the

Accepted Answer

The period after Social Security benefits to a widow terminate until they resume again is called the blackout period.

Question 15

All of the following are defects which limit the usefulness of the human life value approach in determining the correct amount of life insurance to purchase EXCEPT

Accepted Answer

All of the listed choices except D are defects which limit the usefulness of the human life value approach. Ignoring earnings during the individual's productive lifetime would not limit the usefulness of the approach, as it is a key component in calculating the appropriate amount of life insurance needed.

Question 16

Which of the following statements regarding convertible term insurance is true?

Accepted Answer

The original-age conversion method allows the policyholder to pay a premium based on their age when the term policy was first issued, rather than their current age at the time of conversion. This results in lower annual premiums for the cash value coverage compared to using the attained-age method, where premiums are based on the policyholder's age at the time of conversion.

Question 17

Which of the following pieces of information is needed to calculate a person's human life value?

Accepted Answer

Human life value is calculated by determining a person's expected future earnings and subtracting their estimated cost of self-maintenance. Choices A, B, and D are not directly related to a person's future earning potential or cost of self-maintenance.

Question 18

Under the needs approach, when is the dependency period of a surviving spouse assumed to end?

Accepted Answer

Under the needs approach, the dependency period of a surviving spouse is assumed to end when the youngest child reaches age 18.

Question 19

Which of the following statements about premature death is (are) true?
I.From an economic standpoint, premature means death before a specified age, such as 65.
II.The economic problem of problem of premature death in the U.S. has declined substantially over time.

Accepted Answer

The answer of Which of the following statements about premature...

Question 20

Sarah is using the needs approach to determine how much life insurance to buy. Her cash needs are $30,000; her income needs are $140,000; and special needs are $100,000. Sarah has the following assets: $20,000 in bank accounts, $30,000 in retirement plans, and $40,000 in investment accounts. Sarah owns no individual life insurance. She is covered by a $50,000 group life insurance policy through her employer. Based on this information, how much additional life insurance should Sarah purchase?

Accepted Answer

The answer of Sarah is using the needs approach to...

Quiz 11: Life Insurance