finance chapter 8

T or F• Term life insurance provides nothing more than a stipulated amount of death benefits and, as a result, is considered the purest form of insurance.

True. term insurance provides a given amount of life insurance (i.e., death benefits) for a stipulated period of time and nothing more-no investments feature or cash value

Define. Universal life insurance

permanent cash-value insurance that combines term insurance (death benefits) with a tax-sheltered savings/investment account that pays interest, usually at competitive money market rates

limited payment whole life

your covered for your entire life, but the premium payment is based on a specified period. insurance remains in force, at its face value, for the rest of the insured's life.

T or F. • Because most life insurance policies are largely the same, you need not concern yourself with differences in specific contract provisions

False

T or F. • Selecting an insurance company is the first thing you should do when buying life insurance.

False

T or F. • The best way to figure out how much life insurance you need is to use a multiple of your earnings

False

T or F. • Selecting an insurance company is the first thing you should do when buying life insurance.

Fantasy. the first thing you should do is determine the amount of life insurance you need and then select the type of policy that is best for you.

What are the three major types of whole life policies?

Continuous premium, limited payment, and single premium

Advantages/Dis. Variable life insurance

Adv- higher investment returns. Dis- reduced insurance coverage. So be careful when buying variable.

Define. Risk assumption

the choice to accept and bear the risk of loss

Define. Underwriting

the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums. Underwriters gather data from a variety of sources which they statistically analyze to determine the appropriate premiums.

T or F. • Social security survivor's benefits should be factored into your life insurance plans if you have a dependent spouse and/or minor children.

True

T or F• Term insurance provides nothing more than a stipulated amount of death benefits and, as a result, is considered the purest form of life insurance.

True

T or F• Social security survivor's benefits should be factored into your life insurance plans if you have a dependent spouse and/or minor children.

True. Survivor's benefits are paid to the dependents of eligible deceased workers and can be a big factor in helping your family meet their annual income needs.

Define. Insurance policy

a contract between the insured and the insurer under which the insurer agrees to reimburse the insured for any losses suffered according to specified terms. Form your perspective, you are transferring your risk of loss to the insurance company.

Define. Variable life Insurance

goes further than whole and universal life policies in combining death benefits and savings. Policyholder decides how to invest the money in the savings component. the investment accounts are set up like mutual funds.

Define. Loss control

any activity that lessens the severity of loss once it occurs. Together loss prevention and loss control should be important parts of the risk management program of every individual family.

Define. Loss prevention

any activity that reduces the probability that a loss will occur

continuous premium whole life- or straight life

individuals pay a level premium each year until they either die or exercise a non-forfeiture right.. a whole life policy

T or F. • Because most life insurance policies are largely the same, you need not concern yourself with differences in specific contract provisions.

Fantasy. All insurance policies are not the same. Thus, it is important to familiarize yourself with the provisions of the contract, including the beneficiary clauses and settlement options

Advantages/Dis. Of whole life insurance.

Adv- ability to have insurance protection your entire life regardless of your insurability in later years. ability to borrow against the cash value of policy with repayment deferred until death. Dis- its cost. it provides less death protection per premium dollar than term insurance does.

T or F. • The best way to figure out how much life insurance you need is to use a multiple of your earnings.

Fantasy. while the multiple earnings approach is probably the simplest procedure, it suffers from a number of serious shortcomings. A better choice is the needs approach.

single premium whole life

purchased with once cash premium payment at the inception of the contract, thus buying life insurance coverage for the rest of your life.