Chapter 11 Family First Life Insurance: Uses of Life Insurance

The Human Life Value concept is based on A) education level B) age C) income D) occupation

C) income

"Life insurance creates an immediate estate". This phrase means: A) cash value has accumulated in the policy B) the insured's estate receives the death benefit C) when the insured dies, a death benefit is paid D) premiums are payable by the insured's estate

C) when the insured dies, a death benefit is paid

*Craig purchased a life insurance policy for enabling his heirs to pay estate taxes. What is this called? A) Estate conservation B) Liquidity maintenance C) Survivor fund D) Human value protection

A) Estate conservation (when individuals purchase life insurance to enable their heirs to pay estate taxes)

Which of these is a method of determining the level of funds required for ongoing support in the event of the breadwinner's death? A) Financial loss value B) Human life value C) Assessment value D) Replacement value

B) Human life value (human life value calculator helps you assess the financial loss your family would incur if you were to die today)

Buy-sell agreements are typically funded by which two insurance products? A) Decreasing term insurance and Workers' Compensation B) Life insurance and disability insurance C) Endowments and Medicare D) AD&D and Social Security

B) Life insurance and disability insurance

When calculating the amount of life insurance needed for an income earner, what has to be determined when using the Needs Approach? A) The income earner's future projected income B) The family's financial objectives if the income earner were to die or become disabled C) The insurance company's financial rating D) The income earner's credit score

B) The family's financial objectives if the income earner were to die or become disabled (When using the needs approach to determine the amount of life insurance needed for the income earner, it is necessary to determine the family's financial objectives in the event of the death or disability of the income earner).

Which of these factors is NOT taken into account when determining an applicant's life insurance needs? A) Social Security B) automobile C) savings D) pension

B) automobile (in the process of determining an applicant's life insurance needs, an insurance producer takes into account all of these factors EXCEPT an applicant's automobile)

Which of the following pieces of information is NOT gathered during the personal financial planning process? A) An individual's assets B) An individual's expenses C) An individual's income D) An individual's civic organization memberships

D) An individual's civic organization memberships

All of the following are examples of a Business Continuation Plan EXCEPT A) Key person insurance B) Cross-purchase agreement C) Stock Redemption Plan D) Deferred Compensation

D) Deferred Compensation

All of these are common personal uses of life insurance EXCEPT A) Pay final expenses B) Fund a child's education C) Replace an insured's income D) Fund a Buy-Sell agreement

D) Fund a Buy-Sell agreement

*Which approach predicts a person's earning potential and determines how much of that amount would be devoted to dependents? A) Future value approach B) Earnings approach C) Needs approach D) Human life value approach

D) Human life value approach (predicts an individual's future earning potential and determines how much of that amount would be devoted to dependents)

All of the following are considered appropriate uses of life insurance for business purposes EXCEPT A) Attracting quality employees by offering a group life plan B) Funding an entity buy-sell agreement C) Protecting the business by covering key employees with life insurance D) Protecting the business by covering entry level employees with life insurance

D) Protecting the business by covering entry level employees with life insurance (covering entry level employees with life insurance to protect the business is NOT an appropriate business use)

Key person insurance is intended to A) allow a key person to purchase the business B) help retain key employees by offering added benefits C) give premium-grade benefits to key employees D) cover business losses due to the death of a key employee

D) cover business losses due to the death of a key employee