Deck 8: Insuring Your Life

Question 1

The primary purpose of life insurance is to protect family members of the insured from financial loss in the event of his or her untimely death.

Answer 1

True

Question 2

Insurance is a tool that can reduce one's _____ risk.

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

Answer 2

C

Question 3

The basic purpose of insurance is to _____.

A)protect your health
B)protect yourself from economic losses
C)supplement your income
D)shield you from bad decisions
E)protect yourself from non-financial losses

Answer 3

B

Question 4

Risk avoidance involves asking an insurance company to take over the risk for a small payment (the premium).

Question 5

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 6

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,habits,and experiences.

Question 7

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

Question 8

Risk avoidance is attractive when the cost of avoidance is less than the cost of handling it some other way.

Question 9

If an insured has a high-risk hobby,then he or she should expect to pay less for life insurance.

Question 10

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

Question 11

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

Question 12

Insurance agents always disclose their commissions in an insurance policy.

Question 13

The need for life insurance increases with children.

Question 14

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

Question 15

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

Question 16

Generally,the primary purpose of life insurance is to provide a tax-advantaged investment plan.

Question 17

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

Question 18

The life insurance needs of beneficiaries are secondary since most proceeds are paid to policyholders.

Question 19

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

Question 20

An individual's need for additional life insurance can be determined by looking at the difference between his or her family's available financial resources after his or her death and his or her family's total economic needs.

Question 21

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 22

While performing needs analysis,when determining the available resources to offset the economic needs,you would generally ignore:

A)Social Security benefits.
B)the educational qualification of the children.
C)the earning potential of the surviving spouse.
D)savings corpus.
E)the employer-provided group life insurance.

Question 23

Insurance companies use actuarial data to measure:

A)the creditworthiness of a given population.
B)the risk of loss for a given population.
C)the wealth of a given population.
D)the gross productivity of a given population.
E)the consumer price index of a given population.

Question 24

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 on the field.
D)a process of developing taxing structures for insurance policies.
E)a function most often performed by an actuary.

Question 25

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 26

A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary,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 as premiums for the life insurance of 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 27

From the standpoint of a person buying insurance,the central purpose of insurance should be:

A)to transfer the risk of serious losses.
B)to collect for all accidental losses.
C)to profit from uncertain future events.
D)to contribute to charitable purposes.
E)to reduce payouts for the small risks taken.

Question 28

While using the needs analysis approach,we _____.

A)add an individual's available resources to his or her family's total economic needs to calculate how much life insurance he or she requires
B)multiply an individual's gross annual earnings by some selected number to arrive at an estimate of adequate life insurance coverage
C)get only a loose approximation of life insurance needs of an individual
D)divide an individual's gross annual earnings by some selected number to arrive at an estimate of adequate life insurance coverage
E)deduct an individual's available resources from his or her family's total economic needs to calculate how much life insurance he or she requires

Question 29

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

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 divides the gross annual earnings of the insured by the insurance coverage available to the insured to determine the amount of annual insurance premium.
E)The multiple-of-earnings method determines the amount of tax benefits available to the insured when the life insurance coverage is availed.

Question 30

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

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

Question 31

A(n)_____ policy is a contract between an individual and a company under which the company agrees to reimburse the individual for losses suffered by him or her according to specified terms.

A)underwriting
B)risk
C)insurance
D)debt
E)reimbursement

Question 32

Which of the following is true of risk avoidance?

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 small exposures to loss when insurance is too expensive.

Question 33

The underwriting function of insurance companies is designed to ensure that premiums are based on_____.

A)income levels
B)the value of losses
C)the value of gains
D)the chance of losses
E)expense levels

Question 34

_____ 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 35

The primary purpose of life insurance is to provide:

A)financial security for dependents in the event of death.
B)protection from creditors and lawsuits.
C)tax-advantaged investments.
D)high-yield investments.
E)liquidity to expand business operations.

Question 36

The primary purpose of a life insurance plan is to help:

A)provide tax benefit to the beneficiaries of the policy in the event of the insured's untimely death.
B)in the protection of the dependents of the insured from financial loss in the event of his or her untimely death.
C)in the loss prevention of the insured in the event of his or her untimely death.
D)in controlling the loss of the insured in the event of his or her untimely death.
E)in the risk avoidance of the insured in the event of his or her untimely death.

Question 37

_____ 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 38

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 39

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

A)computing the Human Life Value.
B)using 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)assessing the family's total economic needs and subtracting the financial resources available to meet those needs.
D)estimating 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)using the multiple-of-earnings method adjusted for occupation.

Question 40

Which of the following is true of insurance underwriting?

A)Insurance underwriting is any activity that reduces the chance that a loss will occur.
B)Insurance underwriting is a process used to avoid an act that would create a risk.
C)Insurance underwriting is a process that helps insurers determine the insurance needs of the potential insured.
D)Insurance underwriting is any activity that lessens the severity of loss once it occurs.
E)Underwriters design rate classification schedules so that people pay premiums that reflect their chance of loss.

Question 41

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

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

Question 42

_____ 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 43

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 whole life
C)limited payment whole life
D)viatical life
E)group life insurance

Question 44

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

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

Question 45

The insurance portion of a universal life policy is most analogous to:

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

Question 46

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

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

Question 47

_____ and _____ are both relatively expensive types of decreasing term life insurance.

A)Group life; credit life
B)Credit life; mortgage life
C)Mortgage life; industrial life
D)Industrial life; special-purpose policies
E)Special-purpose policies; group life

Question 48

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.

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 49

A(n)_____ is a common provision in many term policies.

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

Question 50

Term life insurance is characterized by _____.

A)level annual premiums throughout one's life
B)premium amounts related to the age of the insureds
C)its inappropriateness for most people's life insurance needs
D)non-convertibility
E)cash value accumulation

Question 51

Universal life insurance is:

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

Question 52

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 53

Families faced with the loss of a principal wage earner receive Social Security benefits _____.

A)that are deducted from the insurance proceeds,for the purpose of tax calculation
B)after paying 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)after the repayment of all the financial obligations of the principal wage earner

Question 54

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

A)No flexible premiums
B)No choice in how the accumulation account is invested
C)Absence of a savings feature
D)Fixed premiums and protection levels
E)Lighter fees than other insurance policies

Question 55

Jonathan estimates that financial resources worth $2,000,000 will be necessary to protect his family after his death.What is the amount of insurance,as per the needs analysis method,that Jonathan should 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 56

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

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

Question 57

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

A)Job promotion of the potential insured
B)High-paying career of the potential insured
C)Obesity of the potential insured
D)Childbirth in the family of the potential insured
E)Wedding of the potential insured

Question 58

Group life insurance is:

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

Question 59

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 60

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 61

The most accurate way to determine how much life insurance you need is to use the ___________ method. ​

A)multiple-of-earnings
B)needs analysis
C)disposable income
D)DuPont analysis

Question 62

Which of the following policy features allows the insured to increase coverage periodically without showing proof of insurability?

A)Multiple indemnity clause
B)Guaranteed purchase option
C)Disability clause
D)Paid-up insurance option
E)Extended-term option

Question 63

Nonforfeiture rights guarantee that a policy owner will not lose his or her policy's _____.

A)face value
B)death benefits for survivors
C)cash value
D)premium refunds
E)premium reductions

Question 64

A grace period permits a policyholder to retain full death protection even though the premium has not been paid for:

A)12 months.
B)6 months.
C)3 months.
D)50 days.
E)31 days.

Question 65

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)19
D)15
E)25

Question 66

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 67

The policy owner assumes the investment risk with a ___________ insurance policy. ​

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

Question 68

Marilyn Simms died with a $200,000 life insurance policy.Her husband,Jack,is the primary beneficiary,and their children,Mimi (age 24)and Ann (age 30),are the contingent beneficiaries.All three survive Marilyn.How will the policy proceeds be distributed?

A)$200,000 to Jack
B)$100,000 each to Mimi and Ann
C)$100,000 to Jack and $50,000 each to Mimi and Ann
D)$66,666 each to Jack,Mimi,and Ann
E)$150,000 to Jack and $25,000 each to Mimi and Ann

Question 69

___________ is any activity that lessens the severity of loss once it occurs. ​

A)Loss control
B)Loss prevention
C)Risk control
D)Risk avoidance

Question 70

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 71

The settlement option chosen by most policyholders is:

A)lump sum.
B)interest only.
C)fixed amount.
D)fixed time.
E)life income.

Question 72

___________ is an activity that reduces the chance that a loss will occur. ​

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

Question 73

___________ is an effective way to handle small exposures to loss when insurance is too expensive. ​

A)Loss assumption
B)Risk assumption
C)Risk prevention
D)Loss control

Question 74

A life insurance policy can be structured so that death benefits are paid directly to a(n)___________,which means that creditors cannot claim the cash benefits from the life insurance policy. ​

A)insurance agent
B)named beneficiary
C)underwriter
D)insurance broker

Question 75

___________ is the choice to accept and bear the risk of loss. ​

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

Question 76

It is not possible to avoid ___________. ​

A)loss control
B)most risks in your life
C)accumulating savings
D)making investments

Question 77

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

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

In order to predict the number of losses that will occur in a given time accurately,insurance companies must study a ___________ numbers of cases. ​

A)medium
B)small
C)large
D)negligible

Question 79

It can be difficult to evaluate the true cost of a _____ 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 80

By ___________,insurance companies decide who will be insured by them. ​

A)loss prevention
B)risk assumption
C)underwriting
D)needs analysis