Deck 8: Insuring Your Life

Question 1

Social Security survivor's benefits are intended to provide basic, minimum support to families faced with the loss of a principal wage earner.

Answer 1

True

Question 2

Underwriters use life expectancy figures to look at overall longevity for various age groups and also consider specific factors related to an applicant's health.

Answer 2

True

Question 3

Life insurance proceeds paid to your heirs are not generally subject to state or federal income taxes.

Answer 3

True

Question 4

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

Question 5

Avoiding alcoholic beverages while driving is an example of loss prevention.

Question 6

If you have a high-risk hobby, then you could be required to pay more for life insurance than others pay.

Question 7

The need for life insurance increases with children.

Question 8

Risk avoidance is an effective way to handle potentially small losses when the cost of insurance would be too expensive.

Question 9

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

Question 10

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

Question 11

Group life insurance is usually term insurance.

Question 12

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

Question 13

The multiple-of-earnings method of determining life insurance needs is simple to use but can be unreliable.

Question 14

The primary purpose of life insurance is to provide a tax-advantaged investment plan.

Question 15

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

Question 16

Risk avoidance is attractive when the estimated cost of avoidance is less than the estimated cost of managing risk in some other way.

Question 17

The first question to ask when considering the purchase of life insurance is whether you can afford it.

Question 18

Your need for additional life insurance can be determined by looking at the difference between your family's available financial resources after your death and your family's total economic needs.

Question 19

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

Question 20

Unbundling in universal life insurance means that the death protection and savings portions are identified separately in its premium.

Question 21

Which of the following statements regarding risk avoidance is true?

A) Risk avoidance is any activity that helps evade an act that creates a risk.
B) Risk avoidance is any activity that increases the chance that a loss will occur.
C) Risk avoidance is any activity that lessens the severity of loss once it occurs.
D) Risk avoidance is an act that reduces the probability that a loss will occur.
E) Risk avoidance is an effective way to handle many types of potentially small exposures to loss when insurance would be too expensive.

Question 22

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

Question 23

Insurance is a tool that can reduce your _____ risk.

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

Question 24

The availability of group coverage through employee benefit programs should be considered when developing a life insurance program.

Question 25

Insurance underwriting is best described as:

A) the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.
B) a set of activities used to identify the risk and rewards of investing an insured's funds on marketable securities.
C) production-related activities performed primarily by agents in the field.
D) a process of developing taxing structures for insurance policies.
E) a function most often performed by an actuary.

Question 26

A life insurance policy allows the owner to name both a primary beneficiary and contingent beneficiaries.

Question 27

Through underwriting, insurance companies try to guard against:

A) risk aversion.
B) risk transfer.
C) short-term shocks in the investment market.
D) adverse selection.
E) economic downturns.

Question 28

Insurance agents are legally required to disclose their commissions in an insurance policy.

Question 29

Only one agent should be consulted for discussing personal financial needs and insurance requirements while buying life insurance.

Question 30

Credit life insurance is one of the least expensive forms of life insurance.

Question 31

The fastest-growing source of life insurance quotes and policies in recent years is the Internet.

Question 32

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

Question 33

The basic purpose of insurance is to:

A) protect the health of you and your family.
B) protect you and your family from financial losses .
C) supplement the income of you and your family.
D) shield you and your family from bad decisions.
E) protect you and your family from nonfinancial losses.

Question 34

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

Question 35

Underwriting refers to:

A) selling insurance at a premium less than that of the competitors.
B) the payment of a claim.
C) a method for developing policy wording.
D) the determination of which exposures to insure.
E) restoring the claimant to the financial condition prior to loss.

Question 36

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

Question 37

_____ is the choice to accept and bear the risk of loss.

A) Loss assumption
B) Risk assumption
C) Risk avoidance
D) Loss avoidance
E) Risk sharing

Question 38

The purchase of insurance is a common form of _____ by the insured.

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

Question 39

Which of the following statements regarding insurance underwriting is true?

A) Insurance underwriters perform any activity that reduces the chance that a loss will occur.
B) Insurance underwriters perform a process used to avoid an act that would create a risk.
C) Insurance underwriters help insurers determine the insurance needs of the potential insured.
D) Insurance underwriters lessen the severity of loss after it occurs.
E) Insurance underwriters design rate-classification schedules so that people pay premiums that reflect their chance of loss.

Question 40

The probability of a loss occurring can be reduced by:

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

Question 41

Insurance companies make profit by:

A) charging consultation fees to the insured.
B) avoiding the risk of loss of the insured.
C) charging underwriting fees from insurance agents.
D) paying out less than the sum of the premiums and the earnings on them.
E) giving less than the amount mentioned in the policy to the insured.

Question 42

A(n) _____ provision enables you to purchase a term life policy again at its expiration.

A) reward
B) renewable
C) loss prevention
D) limited risk
E) arbitration

Question 43

_____ determines the amount of life insurance coverage required for an individual by considering his or her financial obligations and available financial resources in addition to life insurance.

A) The savings analysis method
B) The needs analysis method
C) The earnings analysis method
D) The liabilities analysis method
E) The borrowings analysis method

Question 44

Which of the following statements regarding the multiple-of-earnings method is true?

A) The multiple-of-earnings method determines the amount of life insurance coverage needed by multiplying the net annual earnings of the insured by some selected number.
B) The multiple-of-earnings method determines the amount of life insurance coverage needed by multiplying the gross annual earnings of the insured by some selected number.
C) The multiple-of-earnings method considers the insured's financial obligations to compute the insurance premium amount.
D) The multiple-of-earnings method subtracts specific financial obligations and resources from the gross annual earnings of the insured to determine the amount of annual insurance premium.
E) The multiple-of-earnings method multiplies the amount of tax benefits available to the insured when the life insurance benefit is paid.

Question 45

Families faced with the loss of a principal wage earner receive Social Security survivor's benefits:

A) that are deducted from the insurance proceeds, for the purpose of tax calculation.
B) that will pay any additional taxes on the benefit amount.
C) from the government that are intended to provide basic, minimum support.
D) that amount to 5 to 10 times the current income of the principal wage earner.
E) that will repay all the financial obligations of the principal wage earner.

Question 46

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

A) All term policies maintain a level premium throughout all periods of coverage while the amount of protection decreases.
B) Term life usually offers lower initial premiums than other types of insurance.
C) Term life insurance offers permanent coverage.
D) A major disadvantage of term insurance is the lack of a convertibility provision.
E) Term life insurance provides for the accumulation of cash value.

Question 47

Jonathan estimates that financial resources worth $2,000,000 will be necessary to protect his family after his death. What amount of insurance, as per the needs analysis method, should Jonathan purchase if he has current financial resources worth $1,000,000?

A) $1,000,000
B) $2,000,000
C) $2,500,000
D) $1,500,000
E) $500,000

Question 48

Which of the following is an example of loss control?

A) Driving within the speed limit to lessen the chance of being in a car accident
B) Paying for medical bills out of pocket rather than purchasing health insurance
C) Purchasing a car with dual air bags
D) Not driving at all to avoid being in a car accident
E) Signing a waiver before joining a gym that bars the company from being responsible for any injuries you may suffer

Question 49

Insurance companies use actuarial data to measure the:

A) creditworthiness of a given population.
B) risk of loss for a given population.
C) wealth of a given population.
D) gross productivity of a given population.
E) age of a given population.

Question 50

_____ involves abstaining from any activity that will affect an individual financially.

A) Risk avoidance
B) Loss prevention
C) Loss control
D) Risk assumption
E) Premium collection

Question 51

While performing needs analysis, when determining the financial resources that will be available after your death to offset your family's total economic needs, you would generally ignore:

A) Social Security survivor's benefits .
B) the children's educational qualifications.
C) the earning ability of the surviving spouse.
D) money from savings and investments.
E) possible proceeds from employer-sponsored group life insurance policies.

Question 52

The _____ method is a detailed method of determining the amount of life insurance coverage needed for an individual.

A) human life value
B) multiple-of-earnings
C) risk assessment
D) economic identification
E) needs analysis

Question 53

If a term life insurance policy is convertible, it can be:

A) transferred to the life of another person in the future.
B) exchanged for cash in the future.
C) changed to health or disability protection.
D) changed to a comparable whole life policy in the future.
E) revised as needed by the insurer.

Question 54

Insurance companies use _____ to determine whom they will insure and what they will charge for insurance coverage.

A) Social Security survivor's benefits
B) the needs analysis method
C) underwriting
D) risk assumption
E) loss control

Question 55

While using the needs analysis approach to determine how much life insurance to purchase, you should:

A) add the financial resources that will be available after your death to your family's total economic needs.
B) multiply your gross annual earnings by the size of your family.
C) purchase the equivalent of your current annual income.
D) divide your gross annual earnings by the size of your family.
E) deduct the financial resources that will be available after your death from your family's total economic needs.

Question 56

A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary rather than being considered part of your estate, which means that:

A) the life insurance proceeds are paid directly to named beneficiaries after payment of state or federal income taxes.
B) the cash benefits from your life insurance policy cannot be claimed by creditors.
C) the life insurance proceeds are invested for the beneficiary.
D) the cash benefits are remitted to the beneficiary only after the beneficiary pays estate taxes.
E) the life insurance company makes additional payments to the family of the insured so that they continue to live comfortably.

Question 57

The preferred technique for determining how much life insurance coverage is needed for an individual is to:

A) compute the human life value.
B) use 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) assess the family's total economic needs and subtracting the financial resources that would be available after death to meet those needs.
D) estimate 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) use the multiple-of-earnings method adjusted for occupation.

Question 58

A(n) _____ policy is a type of term insurance.

A) straight term
B) whole life
C) increasing term
D) variable term
E) risk assumption

Question 59

The primary purpose of life insurance is to provide:

A) financial security for your dependents after your death.
B) protection from creditors and lawsuits before your death.
C) tax-advantaged investments for your family.
D) high-yield investments for you and your family.
E) liquidity to expand your business operations.

Question 60

Which of the following leads to the payment of a higher insurance premium by the potential insured?

A) Job promotion
B) High-paying career
C) Obesity
D) Childbirth in the family
E) Marriage

Question 61

Henry must make set premium payments on his insurance policy until he dies, and if he cancels the policy, he will receive the cash value. His plan is a _____ policy.

A) term life
B) continuous premium whole life
C) limited payment whole life
D) viatical life
E) single premium whole life

Question 62

You can learn about the financial stability of an insurance company by checking _____ rating system.

A) the insurance agent's
B) the U.S. Securities and Exchange Commission (SEC)'s
C) Standard & Poor's
D) the Federal Bureau of Investigation (FBI)'s
E) a financial institution ' s

Question 63

Which of the following represents a disadvantage of a whole life insurance policy?

A) It is difficult to evaluate the true cost of a whole life insurance policy at the time of purchase.
B) A whole life insurance policy provides only temporary coverage for a set period.
C) A whole life insurance policy may require a policyholder to pay higher premiums when the policy is renewed.
D) A whole life insurance policy often provides lower yields than other investment vehicles.
E) A whole life insurance policy does not provide any tax advantages on accumulated earnings.

Question 64

A life insurance policy with a small face amount where the premium may be collected weekly by agents is termed:

A) credit life insurance.
B) mortgage life insurance.
C) industrial life insurance.
D) special-purpose insurance.
E) group life insurance.

Question 65

It can be difficult to evaluate the true cost of a _____ policy at the time of purchase.

A) term life insurance
B) whole life insurance
C) universal life insurance
D) variable life insurance
E) mortgage life insurance

Question 66

Which of the following characterizes whole life insurance?

A) Low fixed premiums
B) High death protection
C) Temporary coverage for a set period
D) Moderate return on investment
E) No tax advantages

Question 67

_____ insurance is generally sold in conjunction with installment loans.

A) Group life
B) Credit life
C) Industrial life
D) Home service life
E) Mortgage life

Question 68

Which of the following is a characteristic of a universal life insurance policy?

A) No flexible premiums
B) Cash value lower than the death benefits
C) Absence of a savings feature
D) Fixed premiums and protection levels
E) Lighter fees than other insurance policies

Question 69

The policy owner assumes the investment risk with a _____  insurance policy.

A) whole life
B) term life
C) variable life
D) viatical life
E) group life

Question 70

You want to pay premiums for 20 years and have your insurance premium obligations finished at that time. However, you feel you will need life insurance for the rest of your life. You should choose a _____ insurance policy.

A) continuous premium whole life
B) limited payment whole life
C) single premium whole life
D) renewable premium whole life
E) convertible whole life

Question 71

The death benefit of a(n) _____ life insurance policy may decrease because of poor investment returns.

A) limited payment
B) whole
C) variable
D) group
E) industrial

Question 72

Employers often provide _____ life insurance as a fringe benefit for their full-time employees.

A) group
B) credit
C) mortgage
D) standard
E) home service

Question 73

A life insurance agent who takes his or her profession seriously is likely to have earned which of the following professional certifications?

A) Chartered Financial Analyst
B) Chartered Life Underwriter
C) Chartered Financial Advisor
D) Certified Insurance Agent
E) Certified Asset Professional

Question 74

Group life insurance is:

A) a term policy designed to pay off the mortgage balance in the event of the borrower's death.
B) insurance that is sold in conjunction with the sale of a group of assets.
C) insurance in which benefits are a function of the returns being generated on the investments selected by the policyholder.
D) insurance that provides a master policy for a group.
E) insurance that issues many master policies for an insured.

Question 75

Universal life insurance is:

A) a deferred premium payment policy.
B) primarily sold to college students.
C) a combined savings/investment plan and insurance policy.
D) a provision for a secondary beneficiary.
E) less expensive than other policy types.

Question 76

_____ can be both an advantage and a disadvantage of universal life insurance.

A) Flexible premiums
B) Tax features
C) High returns
D) Unbundling premiums
E) Underwriting

Question 77

Which of the following statements regarding a good insurance agent is true?

A) The agent is aggressive while pursuing business from the potential insured.
B) The agent is recommended by professionals like bankers and attorneys.
C) The agent charges high commissions for providing insurance coverage.
D) The agent replies with fancy buzzwords and generic answers to questions.
E) The agent is the first one to solicit the potential insured's patronage.

Question 78

Sales commissions and marketing expenses can increase the costs of a fully loaded _____ policy.

A) term life insurance
B) whole life insurance
C) universal life insurance
D) variable life insurance
E) mortgage life insurance

Question 79

Which of the following types of insurance policies provides temporary coverage for a set period?

A) Universal life insurance policy
B) Whole life insurance policy
C) Variable life insurance policy
D) Term life insurance policy
E) Extended life insurance policy

Question 80

It is advisable to purchase life insurance from an insurance company that has been in business for at least _____ years.

A) 5
B) 10
C) 20
D) 15
E) 25