Personal Finance Exam 2 Chapter 9

the policy feature that allows you to pay the premium late but still retain coverage is known as the

grace period

sally heath has the option of obtaining life insurance through her work place. she will not need to take a physical exam. this type of policy would be a ____ policy.

group term life

your agent argues in favor of cash value life insurance. you counteract with term to

have a larger policy and keep things simple enjoy a relatively low cost per each 1000$ of coverage save the difference you would pay, invest it, and come out ahead have a lot of insurance at affordable prices when you need it the most

what are the advantages of term life insurance

it has no investment feature so it costs less than other forms of insurance and it allows you to increase your insurance coverage for specific reasons and specific time periods

cash value policies include a ___ clause that allows you to borrow against the cash value of the policy

loan

Riley knows her ex-husband would not think about taking out a life insurance policy on himself to protect their two children in the event of his untimely death. As a​ result, Riley is taking out a policy on him and paying for it herself. That makes Riley the​ ________ and her children are the​ ________.

policy owner, beneficiaries

John purchases a life insurance policy on his wife Betty where he pays the premium and he will receive the life insurance money when she dies. John is both the​ ________ and the​ ________ who will receive the​ ________ upon the death of​ Betty, the​ ________.

policy owner, beneficiary, face amount, insured

wayne and sarah are trying to manage the risk they face in life as best they can. they are following principle 7 which states

protect yourself against major catastrophes

what are the disadvantages of group term insurance?

relying on group insurance may hinder your decision to leave the company and the cost to convert from group coverage to individual coverage if you leave the company may be cost prohibitive

sharing the financial consequences associated with risk in the insurance industry is sometimes called

risk pooling

the alternative ways that a beneficiary can choose to receive the policy benefits upon the death of the insured are called

settlement options

what are the main features of whole life insurance?

the premiums stay constant for your entire life it provides you with permanent insurance regardless of age or health issues the nonforfeiture right allows you to access the cash value account if needed

life insurance buying is a new experience for many people. what is not a basic consideration when determining life insurance needs?

the settlement options

what is the purpose of companies such as AM Best, Moody's and Standard and Poors?

they evaluate and rate the financial stability of the insurance industry

TF: using the earnings multiple approach is determining the present value of an annuity as a means to determine the face value of the insurance policy one needs to purchase

trie

TF: a disadvantage of term insurance is that the cost rises each time the policy is renewed

true

TF: a flexible spending account saves you money on qualifying healthcare and childcare expenses

true

TF: a guaranteed insurability rider allows you to increase your face value even if your health fails

true

TF: actuaries are statisticians who specialize in estimating the probability of death based on personal characteristics, such as your age and general health, as well as lifestyle specifics such as whether or not you exercise

true

TF: all life insurance policies should have a contingent beneficiary designated

true

TF: an insurance policy is a contract with an insurance company that spells out what losses are covered, what the policy costs, and who receives the payment if a loss occurs

true

TF: cash value insurance is any policy that provides both a death benefit and an opportunity to accumulate cash value

true

TF: in dealing with risk, one can either avoid it, manage it, or transfer it for a fee

true

TF: life insurance and health insurance are designed to transfer the catastrophic risk you can't afford to keep onto the insurance companies

true

TF: life insurance is not meant to benefit you, its purpose is to protect others in the event of your death

true

TF: most major health care policies cover hospital, surgical and physician coverages

true

TF: one of the reasons insurance is so expensive is due to the expense of developing, testing and verifying new drugs. This cost is passed on to consumers

true

TF: term life insurance provides protection for a specified amount of time, typically 1-30 years

true

TF: the beneficiary is the individual designated by the owner of the life insurance policy to receive the insurance policy's proceeds upon the death of the insured

true

TF: the earnings multiple approach is based on the notion that you want to replace a stream of annual income that's lost due to the death of a breadwinner

true

TF: the main disadvantage of a flexible spending plan is that you may lose any money remaining in the account at the end of the fiscal year

true

TF: the nonforfeiture right gives the policyholder the cash value of the policy in exchange for the policy holder giving up his or her right to a death benefit

true

TF: the policy owner must pay the premium during the grace period or they forfeit the policy

true

TF: with term life insurance, the beneficiary receives a fixed death benefit

true

TF: with the needs approach, you should take into consideration any additional insurance policies that have been taken out on your life

true

the incontestability clause states that the insurance company cannot dispute the validity of the contract after a specified period of time, usually

two years

what are the risks associated with term insurance policies?

you may need to have insurance coverage past the term expiration date and the renewal premium may be cost prohibitive

life insurance may not be necessary if

you're married and unemployed you're retired you're single and don't have any dependents you're married, a double income couple with no children

TF: with COBRA coverage, the employer pays the premiums

false

TF: the money that the policy holder is entitled to if the policy is terminated is known as the face value

false

the coverage grace period gives you an extension of generally ___ in which to make your premium payment without cancelling your policy

30 days

TF: the suicide clause will pay double the face value to the beneficiary if the named insured commits suicide

false

TF: practically all insurance contracts include a suicide clause stating that the insurance company won't pay off for suicide deaths that occur within the first five years of the contract

false

TF: the advantage of whole life insurance is that it is generally cheaper than term life insurance per dollar of coverage

false

the primary advantage of term insurance is

affordability

the individual designated by the owner of the life insurance policy to receive the policy's proceeds upon the death of the insured is called the

beneficiary

to lower the cost of long term care insurance, bobbi can

cover the costs of nursing home care through a combination of self-insurance and long-term care insurance buy a long term care policy as soon as possible before costs increase due to advancing age select a longer waiting period (time between nursing home admission and payment of benefits by the insurance company)

TF: most life insurance settlements are based on the named insured dying from an accidental death

false

TF: one of the best features of term insurance is that you are able to borrow against the face value

false