Question 1

Which of the following statements about home service life insurance, which evolved over time from a type of life insurance called industrial life insurance, is true?

Accepted Answer

Home service life insurance is a type of life insurance that evolved from industrial life insurance, which targeted low-income workers. Home service life insurance policies are typically small face value policies that are sold by agents who collect premiums at the insured's home on a weekly or monthly basis. Premiums are usually not remitted directly to the insurer or agent. It is not a group term insurance coverage marketed to employees at work sites, and typically has a face value of less than $25,000. It is also not the most popular product, accounting for only a small percentage of life insurance policies sold today.

Question 2

Which of the following statements about second-to-die life insurance is (are) true?
I.The insurance is a form of endowment coverage.
II. The premium is lower than the combined cost of purchasing a life insurance policy on each insured.

Accepted Answer

Second-to-die life insurance is not a form of endowment coverage, so statement I is false. Statement II is true because the premium for a second-to-die policy is typically lower than the combined cost of purchasing separate policies on each insured. This is because the policy only pays out after the death of both insured individuals, so the risk to the insurer is lower.

Question 3

Which of the following statements about indexed universal life insurance is true?

Accepted Answer

Indexed universal life insurance guarantees a minimum interest rate but also credits interest based on the performance of a specified stock index, making option B true. Option A is false, as variable life insurance and indexed universal life insurance are two different types of life insurance. Option C is also false, as most policies only credit a portion of the return on the equity index, not 100 percent. Option D is false, as there is usually a cap or limit to how much additional interest can be credited.

Question 4

Which of the following statements is (are) true regarding the results of the 2014 study by the Life Insurance Market Research Association (LIMRA) on the adequacy of life insurance owned by households in the United States?
I.The average household is adequately insured against the risk of premature death.
II.The average household is significantly underinsured against the risk of premature death.

Accepted Answer

The statement II is true, as the study found that the average household is underinsured against the risk of premature death. Therefore, option B is the correct choice. Statement I is false, as the study found that the average household is underinsured, not adequately insured.

Question 5

Ann is considering the purchase of a life insurance policy with these characteristics: flexible premium payments, the insurance and savings components are separate, the interest rate credited to the cash value is tied to a changing market interest rate but a minimum interest rate is guaranteed, and a monthly administrative fee is charged. Ann is considering buying

Accepted Answer

The characteristics described fit universal life insurance. The flexible premium payments and separation of insurance and savings components are common features of universal life, and the interest rate credited to the cash value is tied to a changing market interest rate but a minimum interest rate is guaranteed. Additionally, monthly administrative fees are often charged for universal life policies.

Question 6

Which of the following $100,000 whole life insurance policies, issued by the same company to a man age 32, would require the highest first-year premium?

Accepted Answer

The 10-payment whole life insurance policy would require the highest first-year premium because it is designed to be fully paid up after only 10 years. This means that the premiums are much higher than those of policies that spread the payments over a longer period, such as continuous premium (ordinary) life, whole life paid-up at 65, or 20-payment whole life.

Question 7

Which of the following statements is true regarding return of premium term insurance?

Accepted Answer

Return of premium term insurance is more expensive than regular term insurance because it includes a refund provision, and when considering the time value of money, the refunded premiums are not equivalent to having free insurance.

Question 8

Michael wants to make sure that life insurance proceeds are available to pay his outstanding mortgage balance if he dies. He purchased a type of life insurance in which the amount of coverage gradually declines, just as his outstanding mortgage balance gradually declines. This type of life insurance is called

Accepted Answer

Decreasing term insurance is a type of life insurance in which the amount of coverage gradually declines over time, similar to how a mortgage balance decreases. As a result, it is often used to provide coverage for specific financial obligations, such as a mortgage, that are expected to decrease over time. This type of insurance is typically less expensive than traditional whole life or universal life insurance policies, making it an attractive option for those looking to cover a specific debt or financial obligation.

Question 9

A common use of second-to-die life insurance is

Accepted Answer

Second-to-die life insurance is often used in estate planning, as it pays out upon the death of the second insured person (usually a married couple) and can provide funds for estate taxes, ensuring that heirs receive the full value of the estate. Option A and B are not correct as they refer to insuring individuals or families rather than estate planning, and option D refers to insuring key employees of a business, which is unrelated to second-to-die life insurance.

Question 10

Which of the following statements about savings bank life insurance is true?

Accepted Answer

Savings bank life insurance aims to provide low-cost insurance to consumers by minimizing expenses. This is typically achieved by avoiding commissions to sales agents and using simplified underwriting techniques. The maximum amount that a depositor can purchase and the relationship between the insurance coverage and savings account balance may vary by institution.

Question 11

Which of the following statements about variable universal life insurance is (are) true?
I.Variable universal life insurance has fixed premium payments.
II.Variable universal life insurance allows the policyowner to decide where the premiums are invested.

Accepted Answer

Variable universal life insurance does not have fixed premium payments, as they can vary based on market performance. However, policyowners do have the ability to decide where the premiums are invested, giving them more control over potential returns.

Question 12

Alex, age 26, purchased a 20-payment whole life insurance policy. After Alex has made 20 premium payments, his life insurance policy is considered

Accepted Answer

A paid-up policy means that no more premiums need to be paid, and the policy will remain in force for the rest of the insured's life. This is the result of completing all premium payments for a whole life policy, such as the one Alex purchased. The policy has not matured, as maturity typically refers to the end of the policy's death benefit period or the insured reaching a certain age. It is also not reduced or expired in this scenario, as the premium payments have been completed.

Question 13

Which statement is true concerning the economic problem of premature death in the United States?
I.The economic impact of premature death of the breadwinner varies for different types of families.
II.Increased life expectancy has increased the economic problem of premature death over time.

Accepted Answer

Statement I is true, as the economic impact of premature death can vary depending on the type of family (i.e. single income versus dual income households). Statement II is false, as increased life expectancy actually reduces the economic impact of premature death by allowing for more years of potential income earning.

Question 14

Tamara purchased a term insurance policy when she had high life insurance needs and limited income. Now Tamara can afford whole life insurance. What term life insurance provision will permit Tamara to switch her term insurance to whole life insurance without having to show that she is still insurable?

Accepted Answer

The conversion provision allows the policy owner to convert their term insurance policy to a permanent insurance policy, such as whole life insurance, without having to show proof of insurability. This can be beneficial for individuals who may have developed health issues that would prevent them from being insurable at the time of conversion.

Question 15

Dave purchased a life insurance policy. The policy is nonparticipating and the cash values are based on the insurer's present mortality, investment, and expense experience. After 2 years, the insurer will recalculate the premium based on the mortality, investment, and expense experience at that time. Dave purchased

Accepted Answer

Current assumption whole life insurance policies are nonparticipating, meaning the policyholder does not receive dividends or have a say in the insurer's management decisions. However, the cash values of the policy are based on the insurer's current mortality, investment, and expense experience, which is recalculated every few years. This is different from universal life or variable universal life insurance, which may offer more flexibility and investment options but are not necessarily nonparticipating or based on current assumptions. Therefore, based on the given information, current assumption whole life insurance seems to be the best fit for Dave's policy.

Question 16

Gwen purchased an interesting life insurance policy. A minimum interest rate is guaranteed on the cash value, but additional interest may be credited based on the investment performance of a group of common stocks. There is also a cap on the additional interest credited to the policy. Based on this information, what type of life insurance did Gwen purchase?

Accepted Answer

Gwen purchased an indexed universal life insurance policy, which guarantees a minimum interest rate on cash value and allows for additional interest to be credited based on the performance of a group of common stocks. The cap on additional interest indicates that the policy has an indexing feature, which is a hallmark of indexed universal life insurance. Variable life insurance and variable universal life insurance have investment accounts that allow for greater investment choice and risk, whereas current assumption whole life insurance does not contain an investment account.

Question 17

The difference between the legal reserve of a whole life policy and the face amount of insurance is the

Accepted Answer

The legal reserve of a whole life policy is the portion of the policy's premiums that the insurance company sets aside to eventually pay claims on the policy. The face amount of insurance is the amount of money that the policy will pay out upon the death of the insured. The net amount at risk is the difference between the legal reserve and the face amount of insurance, and represents the amount that the insurer would be on the hook to pay out if the insured were to die. Therefore, the correct answer is B.

Question 18

All of the following statements about employer-provided group life insurance are true EXCEPT

Accepted Answer

Individual evidence of insurability, through a medical exam, is usually not required for employer-provided group life insurance. This is because the coverage is typically offered without regard to the insured's health status or medical history.

Question 19

Which of the following statements about policies sold to preferred risks is (are) true?
I.Preferred risks are people whose mortality experience (deaths per thousand at a given age) is expected to be more favorable than average.
II.Insurers require preferred risks to purchase at least a minimum amount of life insurance, such as $250,000.

Accepted Answer

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

Question 20

Carl would like to purchase life insurance. He would also like to invest in a mutual fund. An agent told Carl about a form of life insurance in which Carl could select where the saving component is invested. This form of life insurance has fixed premiums and the cash value is not guaranteed. This type of life insurance is called

Accepted Answer

Variable life insurance allows the policyholder to select where the saving component is invested, making it a good option for someone like Carl who also wants to invest in a mutual fund. Whole life insurance has a guaranteed cash value and fixed premiums, but the investment component is not customizable. Universal life insurance and current assumption whole life also have a fixed investment component, so they would not meet Carl's investment goals.

Quiz 11: Life Insurance