Chapter 1-4
Statistics show that smaller policies lapse less frequently than large policies due to their greater affordability factor.
False
A large number of life insurers cede life premiums to reinsurers, and reinsurance companies also cede risk to other reinsurers in order to minimize their loss exposures.
True
Over time, life insurance needs seldom follow projections, so the greater the uncertainty (risk) of future expected events, the greater the need for realistic flexibility in life insurance planning.
True
Paying life insurance premiums on an installment basis should be selected if the insured has health or family history that might indicate a earlier than average age at death.
True
People with insurance may take greater risks because they know they are protected, resulting in more and earlier claims for the insurer.
True
Planning to minimize estate taxes and to assure adequate liquidity to pay the required taxes are the primary goals in estate and trust plans.
True
Policy replacement should only be considered if keeping the existing policies and augmenting them with new life insurance is less advantageous to the insured.
True
Since life insurance risk is shifted to all the insureds in the insurance policy pool, the insurance company can assume that their financial risk is minimal.
True
State insurance departments enforce "unfair trade practices" and "unfair claims practices" laws by investigating consumer complaints and taking legal action to protect insureds.
True
All life insurance is federally regulated by the SEC in order to achieve uniformity and consistency in polices and insurers.
False
Consumers should consider prepay coverage, like limited payment whole life, if they expect to have greater than average mortality risk
False
Health, age, occupation, avocations, gender, ethnicity, and personal habits are all risk factors considered by underwriters.
False
Most insurance agents use the same rules of thumb methods to accurately estimate the needed amount of life insurance coverage for most families.
False
Most underwriters classify applicant risk as Preferred (higher risk and most expensive), Standard, or Rated (low risk and therefore less costly).
False
Policy dividends differ from stock dividends in that they are guaranteed, so consumers should consider their value into any comparison of policy costs and benefits.
False
Policy loans are generally not treated as taxable distributions, unless the loan exceeds the policyowner's cost basis in the policy.
False
Since insurers invest premiums in less risky securities, like bonds, mortgages, and real estate, most insurance companies are unaffected by economic cycles and trends.
False
Since life insurance risk is shifted to all the insureds in the insurance policy pool, the insurance company can assume that their financial risk is minimal.
False
Since supplementary benefits and riders have little effect on the cost of premiums, policies should only be compared at the basic levels of protection.
False
Stock insurance companies have shareholders, can issue new stock to raise funds, and are not very sensitive to policyowners needs and desires.
False
The rules of thumb, income replacement approach, and the needs approach are all equally effective in determining the appropriate level of life insurance for family protection.
False
Adverse selection and asymmetric information affect insurance profitability because buyers often have better information about their risk of filing claims.
True
An advantage of life insurance is that there will be no public record of the death benefit amount or to whom it is payable.
True
Factors that any cash value life insurance policy analysis should evaluate are surrender charges, cash value projections, policy loans, and dividends.
True
In families with young children or couples with high living standards relative to their incomes, the need for death protection should be given first priority.
True
In general, life insurance companies have an extremely good historical record for safety, performance, and service.
True
In general, life insurance death proceeds are not subject to federal income taxation.
True
Insurers combine their interest, mortality, lapse and expense assumptions, and loading factors to determine premium rates.
True
It is very important for consumers to understand and be comfortable with their life insurance decisions since peace of mind is usually the reason for buying life insurance coverage.
True
Life insurance is a wealth creation tool that assures the accumulation of a desired amount of liquid capital at death.
True
Life insurance is often used in business to insure a key employee, fund buy-sell agreements, and in qualified pension and nonqualified deferred compensation plans.
True
Life insurers are rated by financial rating companies according to their financial stability, strength of operations, and reputation for service.
True
Mutual life insurance companies are owned by their policyowners, have no shareholders, and generally pay policy dividends as a return of over-paid premiums.
True
The Law of Large Numbers states that as the quantity of people with similar characteristics increases, the rate of actual deaths will approach the rate of expected deaths for any insurable group.
True
The human life value approach is often used in wrongful death litigation and is calculated as the present value of all the future earnings potential of the insured.
True
The longer the period into the future that values are projected or illustrated, the less likely they are to be accurate.
True
The needs approach directly analyzes the insured's family financial needs to determine how much life insurance should be purchased.
True
The premature death or disability of a key employee can have a severe impact on a firm's profitability and may even cause a firm to fail.
True
The principal areas of life insurance planning are income replacement and family needs, business insurance needs, and estate preservation and liquidity needs.
True
Underwriting criteria commonly consider the purpose of the insurance, credit history, and prevalence or frequency of foreign travel.
True
