Chapter 8

A grace period permits a policyholder to retain full death protection even though the premium has not been paid for:

31 days.

_____ can be both an advantage and a disadvantage of universal life insurance.

Flexible premiums

insurance is a type of insurance that is issued in policies with small face amounts, often $1,000 or less.

Industrial life

is any activity that lessens the severity of loss once it occurs.

Loss control

is an effective way to handle small exposures to loss when insurance is too expensive.

Risk assumption

_____ involves abstaining from any activity that will affect an individual financially.

Risk avoidance

Which of the following types of insurance policies provides temporary coverage for a set period?

Term life insurance policy

Which of the following is true of a good insurance agent?

The agent is recommended by professionals like bankers and attorneys.

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

false

Underwriters can predict whether or not you will suffer a loss this year.

false

Employers often provide _____ life insurance as a fringe benefit for their employees.

group

The settlement option chosen by most policyholders is:

lump sum.

It is not possible to avoid

most risks in your life

A(n) _____ is a common provision in many term policies.

renewable clause

Underwriting refers to _____:

the determination of which exposures to insure.

Insurance companies use actuarial data to measure:

the risk of loss for a given population.

The availability of group coverage through employee benefit programs should be considered when developing a life insurance program.

true

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.

true

By , insurance companies decide who will be insured by them.

underwriting

Insurance companies use _____ to determine whom they will insure and what they will charge for the coverage.

underwriting

Insurance is a tool that can reduce one's _____ risk.

economic

The primary purpose of life insurance is to provide:

financial security for dependents in the event of death.

Families faced with the loss of a principal wage earner receive Social Security benefits _____.

from the government that are intended to provide basic, minimum support

The primary purpose of a life insurance plan is to help:

in the protection of the dependents of the insured from financial loss in the event of his or her untimely death.

A life insurance policy with a small face amount where the premium may be collected weekly by agents is termed _____.

industrial life insurance

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.

insurance

Insurance companies make profit by:

paying out less than the sum of the premiums and the earnings on them.

The basic purpose of insurance is to _____.

protect yourself from economic losses

Risk avoidance is attractive when the cost of avoidance is less than the cost of handling it some other way.

true

Marilyn Simms died with a $200,000 life insurance policy. Her husband, Jack, is the primary beneficiary, and their children, Mimi (age 24) and Ann (age 30), are the contingent beneficiaries. All three survive Marilyn. How will the policy proceeds be distributed?

$200,000 to Jack

Which of the following is true of the multiple-of-earnings method?

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.

Group life insurance is most likely to be for

a term

The life insurance needs of beneficiaries are secondary since most proceeds are paid to policyholders.

false

is an activity that reduces the chance that a loss will occur.

loss prevention

The _____ method is the most accurate method of determining the amount of life insurance coverage needed for an individual.

needs analysis

The most accurate way to determine how much life insurance you need is to use the method.

needs analysis

The purchase of insurance is a common form of _____ by the insured.

risk transfer

The insurance portion of a universal life policy is most analogous to:

term insurance.

Which of the following is a characteristic of a universal life insurance policy?

No choice in how the accumulation account is invested

_____ and _____ are both relatively expensive types of decreasing term life insurance.

Credit life; mortgage life

_____ determines the amount of life insurance coverage required for an individual by considering his or her financial obligations and available financial resources in addition to life insurance.

The needs analysis method

Group life insurance is:

an insurance that provides a master policy for a group.

If a term life insurance is convertible, the policy can be:

changed to a comparable whole life policy.

Henry must make set premium payments on his insurance policy until he dies, and if he cancels the policy, he will receive the cash value. His plan is a _____ policy.

continuous whole life

While using the needs analysis approach, we _____.

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

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

false

Insurance agents always disclose their commissions in an insurance policy.

false

You want to pay premiums for 20 years and have your insurance premium obligations finished at that time. However, you feel you will need life insurance for the rest of your life. You should choose a _____ insurance.

limited payment whole life

A life insurance policy can be structured so that death benefits are paid directly to a(n) , which means that creditors cannot claim the cash benefits from the life insurance policy.

named beneficiary

Term life insurance is characterized by _____.

premium amounts related to the age of the insureds

An individual's need for additional life insurance can be determined by looking at the difference between his or her family's available financial resources after his or her death and his or her family's total economic needs.

true

The need for life insurance increases with children.

true