Your Money & Credit: Chapter 8
Insurance is a tool that can reduce one's _____ risk.
Economic
The most accurate way to determine how much life insurance you need is to use the ___________ method.
Needs analysis
Which of the following types of insurance policies provides temporary coverage for a set period?
Term life insurance policy
Which of the following is an advantage of universal life insurance?
The death protection portion and the savings portion are separately identifiable.
Insurance companies use _____ to determine whom they will insure and what they will charge for the coverage.
Underwriting
Nonforfeiture rights guarantee that a policy owner will not lose his or her policy's _________.
cash value
An insurance company:
collects premiums and provides insurance coverage.
During the underwriting process, insurance companies:
decide whom they will insure.
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.
When you purchase an insurance policy, you are effectively transferring your risk of loss to the _____.
insurance company
Families cannot rely solely on group life insurance because:
it is temporary and has a relatively low benefit amount.
In order to predict the number of losses that will occur in a given time accurately, insurance companies must study a _______ number of cases.
large
Many buildings are equipped with sprinkler systems that activate in the event of a fire. This protection is an example of:
loss control.
Robert's health maintenance organization (HMO) regularly sponsors classes on nutrition, prenatal care, and other health-related topics. Robert's health maintenance organization is engaged in encouraging a healthy lifestyle, which is an example of:
loss prevention.
For determining how much life insurance you require, a more detailed approach is provided by the:
needs analysis method.
Adverse selection happens when an insurance company has:
only high-risk policyholders.
Underwriters design rate classification schedules so that the insureds:
pay premiums that reflect their chance of loss.
The nonforfeiture option:
pays a policyholder the cash value when the policy is terminated before maturity.
Insurance companies use underwriting to determine:
the applicable premiums they will charge from the potential insured.
A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary, which means that _____.
the cash benefits from your life insurance policy cannot be claimed by creditors
Underwriting refers to _____:
the determination of which exposures to insure.
Of the various types of whole life insurance policies available, continuous premium/straight life offers:
the greatest amount of permanent death protection and the least amount of savings per premium dollar.
Under group life insurance, _____.
the insurance is a term insurance with the option to convert to individual whole life policies
Susan and Mike have been married for four years. Their life insurance requirements depend on:
their earning potential and assets they want to protect.
If policyholders terminate their whole life insurance policies, then:
they can claim the amount accumulated so far.
It can be difficult to evaluate the true cost of a _____ at the time of purchase.
universal life insurance
The policy owner assumes the investment risk with a _________ insurance policy.
variable life
Professional designations, such as Chartered Life Underwriter (CLU) and Certified Financial Planner (CFP), are awarded to those insurance agents:
who meet experience requirements and pass comprehensive examinations in related fields.
It is advisable to purchase life insurance from an insurance company that has been in business for at least _________ years.
25
Group life insurance is most likely to be for
A term
A life insurance agent who takes her profession seriously is likely to have earned a professional certification like the _______________.
Chartered Life Underwriter
T/F: Risk avoidance involves asking an insurance company to take over the risk for a small payment (the premium).
False
T/F: Underwriters can predict whether or not you will suffer a loss this year.
False
_____ can be both an advantage and a disadvantage of universal life insurance.
Flexible premiums
Which of the following is a feature of term life insurance?
Lower initial premiums
Which of the following leads to the payment of a higher insurance premium by the potential insured?
Obesity of the potential insured
_____ 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
Which of the following is true of the evaluation of an insurance company by a rating agency?
They evaluate the claims paying ability of the insurance company.
Which of the following is true of a licensed insurance agent?
They guide the insured in making financial decisions regarding insurance.
T/F: Life insurance proceeds paid to your heirs are not usually subject to state or federal income taxes.
True
Michael is afraid that he might lose everything as a result of an automobile accident, so he never drives a car. This is as example of:
risk avoidance.
Which of the following is true of the multiple-of-earnings method?
It determines the amount of life insurance coverage needed by multiplying the gross annual earnings of the insured by some selected number.
Which of the following is true of risk avoidance?
It is any activity that helps evade an act that creates a risk.
Which of the following is a key benefit of having life insurance?
It provides financial protection for your dependents after your death.
Recently, your puppy chewed up your shoes and you had to go buy another pair. This is an example of:
risk assumption.
For most families, money from _____ makes up the largest non-life insurance financial resource.
savings, investments, and Social Security survivor's benefits
Life insurance coverage is required the most by:
a single adult with an uncle to support.
Jonathan estimates that financial resources worth $2,000,000 will be necessary to protect his family after his death. What is the amount of insurance, as per the needs analysis method, that Jonathan should purchase if he has current financial resources worth $1,000,000?
$1,000,000
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 activities carried out by the insured will be considered risky in life insurance underwriting?
Skiing as a hobby
Which of the following will help assess your family's total economic needs to estimate the amount of insurance coverage required?
Special requirements of dependents
T/F: Social Security survivor's benefits are intended to provide basic, minimum support to families faced with the loss of the principal wage earner.
True
T/F: The availability of group coverage through employee benefit programs should be considered when developing a life insurance program.
True
T/F: 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
T/F: Underwriters use life expectancy figures to look at overall longevity for various age groups and also consider specific factors related to an applicant's health, habits, and experiences.
True
Which of the following is true of insurance underwriting?
They design rate classification schedules so that people pay premiums that reflect their chance of loss.
The most preferred technique for determining how much life insurance coverage is needed for an individual is:
assessing the family's total economic needs and subtracting the financial resources available to meet those needs
Insurance companies make profit by:
paying out less than the sum of the premiums and the earnings on them
Insurance underwriting is best described as:
the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.
By _________, insurance companies decide who will be insured by them.
underwriting
