Chapter 8 Questions

A life insurance policy with a small face amount where the premium may be collected weekly by agents is termed _____. A. mortgage life insurance B. industrial life insurance C. special purpose insurance D. group life insurance E. credit life insurance

B

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

A

The need for life insurance increases with children. A. true B. false

A

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. A. true B. false

A

The primary purpose of life insurance is to provide: A. financial security for dependents in the event of death B. tax-advantaged investments C. high-yield investments D. protection from creditors and lawsuits E. liquidity to expand business operations

A

The settlement option chosen by most policyholders is: A. lump sum B. fixed time C. interest only D. fixed amount E. life income

A

Underwriting refers to _____: A. the determination of which exposures to insure B. restoring the claimant to the financial condition prior to loss C. selling insurance at a premium less than that of the competitors D. a method for developing policy wording E. the payment of a claim

A

By ____, insurance companies decide who will be insured by them. A. loss prevention B. underwriting C. needs analysis D. risk assumption

B

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

B

If a term life insurance is convertible, the policy can be: A. exchanged for cash B. changed to a comparable whole life policy C. transfered to the life of another person D. revised as needed by the insurer E. changed to health or disability protection

B

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

B

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

B

____________ is an activity that reduces the chance that a loss will occur. A. risk transfer B. loss prevention C. loss control D. risk avoidance

B

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. reimbursment B. risk C. insurance D. debt E. underwriting

C

The most accurate way to determine how much life insurance you need is to use the _______ method. A. disposable income B. multiple-of-earnings C. needs analysis D. DuPont analysis

C

Insurance companies use actuarial data to measure: A. the gross productivity of a given population B. the consumer price index of a given population C. the creditworthiness of a given population D. the risk of loss for a given population E. the wealth of a given population

D

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 invested as premiums for the life insurance of the beneficiary B. the life insurance company makes additional payments to the family of the insured so that they continue to live comfortably C. the cash benefits are remitted to the beneficiary only after the beneficiary pays estate taxes D. the life insurance proceeds are paid directly to named beneficiaries after payment of state or federal income taxes E. the cash benefits from your life insurance policy cannot be claimed by creditors

E

Which of the following is true of risk avoidance? A. Risk avoidance is any activity that lessens the severity of loss once it occurs B. Risk avoidance is any activity that increases the chance that a loss will occur C. Risk avoidance is an effective way to handle small exposures to loss when insurance is too expensive D. Risk avoidance is an act that reduces the probability that a loss will occur E. Risk avoidance is any activity that helps evade an act that creates a risk

E

Which of the following is true of the multiple-of-earnings method? A. The multiple-of-earnings method considers the insured's financial obligations to compute the insurance premium amount B. 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 C. The multiple-of-earnings method determines the amount of tax benefits available to the insured when the life insurance coverage is availed D. 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 E. 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

E

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. get only a loose approximation of life insurance needs of an individual C. divide an individual's gross annual earnings by some selected number to arrive at an estimate of adequate life insurance coverage D. multiply 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

E