ACE 240 Mid-Term Study Guide

A short-term disability policy typically will pay ___ of one's base salary. A long-term disability policy typically will pay ___ of your base salary. Disability policies will limit a client's benefit, generally capping off at ___ of the client's monthly income. 1. 60-70%, 40-60%, 70-80% 2. 40-60%, 60-70%, 70-80% 3. 60-70%, 40-60%, 90-100% 4. 40-60%, 60-70%, 90-100%

1. 60-70%, 40-60%, 70-80%

According to the lecture, whole life insurance makes sense for which of the following individuals? 1. A farmer who wants a death benefit whether he lives another 30, 40, or 50 years. 2. A financially independent retiree with a $3,000,000 investment portfolio. 3. A chemist with no assets who wants life insurance coverage to bridge the gap between now and when assets may be accumulated. 4. A young family with a $2,000,000 death benefit need, but not a lot of additional money for life insurance premiums.

1. A farmer who wants a death benefit whether he lives another 30, 40, or 50 years.

How are insurance agents paid? 1. Commission 2. Flat fee 3. Hourly 4. Salary from employer

1. Commission

Which of the following is incorrect as it relates to how deductibles work? 1. In general, plans that have lower monthly premiums will have lower deductibles 2. Many plans pay for certain services, like a checkup or disease management programs, before you've met your deductible 3. Separate plans may exist for certain services, such as prescription drugs 4. Your plan may also pay for certain preventive benefits before your deductible is met

1. In general, plans that have lower monthly premiums will have lower deductibles

Many Americans are surprised by the cost of health insurance when they have to purchase it on their own. Why don't many Americans understand the cost of coverage? 1. Most have health insurance through work that their employer helps pay for. 2. Most have health insurance through work, but generally opt out of it.

1. Most have health insurance through work that their employer helps pay for.

Which health insurance allows you to use doctors, hospitals, and providers outside of the network without a referral for an additional cost? 1. Preferred Provider Organization 2. Point of Service 3. Health Maintenance Organization 4. Exclusive Provider Organization

1. Preferred Provider Organization

According to Dr. James M. Dahle's article, "Whole Life Insurance for Doctors - Your Questions Answered," 80% of people who purchase a whole life policy surrender it prior to death. 1. True 2. False

1. True

According to Dr. James M. Dahle's article, "Whole Life Insurance for Doctors - Your Questions Answered," a typical commission for a cash value life insurance policy ranges from 50% to 110% of the first year's premium. 1. True 2. False

1. True

According to Dr. James M. Dahle's article, "Whole Life Insurance for Doctors - Your Questions Answered," the low returns of whole life insurance are heavily front-loaded. Because of this, an older policy usually performs better than a new one. 1. True 2. False

1. True

According to Wade D. Pfau's article, "Investigating the Role of Whole Life Insurance in a Lifetime Financial Plan," advisers should not blindly follow the common notion of "buy term and invest the difference" when seeking to create the most efficient lifetime financial plans for their clients. He suggests that, in some situations, the power of risk pooling in a lifetime financial plan should not be overlooked. 1. True 2. False

1. True

According to the Social Security Administration's insured worker data, an individual born in 2000 has a 25% chance of becoming disabled before their normal retirement age. 1. True 2. False

1. True

Aside from checkups and preventive benefits, an individual generally must meet their deductible prior to their health insurance plan beginning to pay for services received. 1. True 2. False

1. True

Auto insurance premiums are determined by the amount of liability insurance purchased, type of car driven, average miles driven, driving record of the policy holder, credit score, age, gender and marital status. 1. True 2. False

1. True

Comprehensive insurance coverage helps pay for repair resulting from perils other than collision. It also helps pay for replacement if your vehicle is stolen. 1. True 2. False

1. True

Disability insurance can be described as a contract between the policyowner and the insurance company. In exchange for premium payments, the insurer promises to provide an income benefit if the contract's definition of disability is met. 1. True 2. False

1. True

For home insurance, if you do not carry the required percentage of replacement value of property (often 80%), you will bear part of the loss as a co-insurer. 1. True 2. False

1. True

Liability insurance protects against the financial consequences from an insured's responsibility to others. 1. True 2. False

1. True

Life insurance death benefit is typically income-tax free to beneficiaries. 1. True 2. False

1. True

Medical Payments, also called Personal Injury Protection (PIP), is fairly limited and is intended for minor injuries rather than catastrophic events. Some states, called No Fault states, may require purchasing PIP protection. 1. True 2. False

1. True

Most people obtain health insurance through their employer. 1. True 2. False

1. True

Personal property includes tangible movable property such as household furniture, TVs, and vehicles. 1. True 2. False

1. True

Property and casualty insurance is an important aspect of financial planning because a single accident or event could jeopardize a household's financial future. 1. True 2. False

1. True

Uninsured and underinsured motorist coverage allows the insured to collect benefits from their own insurance company when the at-fault individual is uninsured or underinsured. 1. True 2. False

1. True

With health insurance, you pay premiums regardless of whether you make a claim. 1. True 2. False

1. True

The first step in the financial planning process is: 1. Understanding your personal and financial circumstances 2. Identifying and selecting goals 3. Monitoring progress and updating 4. Developing financial planning recommendations

1. Understanding your personal and financial circumstances

Financial planning is a(n) 1. on-going process that should be re-visited as a person goes through their financial life 2. one-time activity that should involve your accountant, attorney, and family members 3. common and well-developed ability among most American families; numerous surveys show that the average person is quite savvy financially 4. one-time activity that is personal and private, and anyone can do it without professional assistance.

1. on-going process that should be re-visited as a person goes through their financial life

The Human Life Value method for determining life insurance need is characterized by all of the following, except... 1.An expectation that life insurance proceeds will not be used, resulting in the principal remaining intact and beneficiaries only living off income. 2.The expectation that life insurance proceeds will be spent over time, eventually resulting in the entire benefit being used up. 3.A desire to replace a client's income (or portion thereof) for their anticipated working years.

1.An expectation that life insurance proceeds will not be used, resulting in the principal remaining intact and beneficiaries only living off income.

In Wade D. Pfau's article, "Investigating the Role of Whole Life Insurance in a Lifetime Financial Plan," the study investigated which of the following scenarios where a couple could consider incorporating whole life insurance into their lifetime financial plan? 1. As an alternative means for funding a legacy goal. 2. All answers are correct. 3. As a behavioral justification for also including an income annuity in their retirement plan. 4. As a volatility buffer to help manage sequence of returns risk for their investments.

2. All answers are correct.

Which of the following are taken into account to determine automobile insurance premiums? 1. Rating territory 2. All answers are correct. 3. Type of automobile 4. Driver's personal characteristics

2. All answers are correct.

How much mandatory minimum auto insurance coverage does Illinois require? 1. $50,000 injury or death of more than one person in an accident. 2. All of the answers are Illinois auto insurance minimum coverage amounts. 3. $20,000 damage to property of another person. 4. $25,000 injury or death of one person in an accident.

2. All of the answers are Illinois auto insurance minimum coverage amounts.

Based on the lecture, the type of life insurance you should select depends on which of the following? 1. Your circumstances 2. All of the answers are correct 3. Your individual wants 4. Your specific goals

2. All of the answers are correct

All of the following are factors affecting auto insurance premiums, except 1. Driver's marital status. 2. Driver's income. 3. Driver's gender. 4. Driver's driving record. 5. Driver's age.

2. Driver's income.

Banks do not require that homeowner's insurance be in place before issuing a mortgage. 1. True 2. False

2. False

Except for the very wealthy, purchasing $1,000,000 in personal umbrella insurance is simply impossible due to the expensive nature of this type of coverage. 1. True 2. False

2. False

Generally speaking, whole life insurance is cheaper than term insurance. 1. True 2. False

2. False

Group disability insurance is usually more expensive than individual disability insurance. 1. True 2. False

2. False

Health insurance premiums count towards an individual's out-of-pocket maximum. 1. True 2. False

2. False

Income taxes are typically due on life insurance death benefit proceeds. 1. True 2. False

2. False

Like health insurance, life insurance companies must offer coverage to policyowners regardless of pre-existing conditions. 1. True 2. False

2. False

Medicaid is health insurance for qualifying individuals age 65 and older. 1. True 2. False

2. False

Premium is the amount you pay for your health insurance every month, and this amount applies towards your deductible or out-of-pocket maximum. 1. True 2. False

2. False

Question 131 / 1 pts When multiple companies insure a property, together they will pay more than the economic loss. 1. True 2. False

2. False

State minimums are in place in order to ensure that motorists have the right amount of auto insurance coverage. 1. True 2. False

2. False

The Income Multiplier method for determining life insurance need is generally considered a sophisticated (and complicated) approach. 1. True 2. False

2. False

The insured is always the same person as the policyowner. 1. True 2. False

2. False

Under the Human Life Value model, the principal sum received from the life insurance benefit is intended to remain intact. 1. True 2. False

2. False

Young people don't need life insurance because they are young and healthy. 1. True 2. False

2. False

Flexible Spending Accounts and Health Savings Accounts differ in that 1. Flexible Spending Accounts permit contributions to carry over year over year without limit to amount or when the money is used. 2. Health Savings Accounts permit contributions to carry over year over year without limit to amount or when the money is used. 3. Flexible Spending Accounts permit money to be invested.

2. Health Savings Accounts permit contributions to carry over year over year without limit to amount or when the money is used.

Which of the following is not an example of personal property? (Based on the definitions of "personal" and "real" property that we discussed in class.) 1. Stock Certificate 2. House 3. Lawnmower 4. Car

2. House

In light of the cost of healthcare in the United States, in most cases the Illinois minimum required auto insurance should be considered 1. Excessive 2. Inadequate 3. Adequate

2. Inadequate

___ must submit to underwriting in order for the insurance company to determine whether they are eligible for coverage. 1. Beneficiary 2. Insured 3. Policyowner

2. Insured

The term most closely associated with quality of life is: 1. Education 2. Standard of Living 3. Wealth 4. Visible consumption

2. Standard of Living

According to the lecture, should non-working parents/care providers obtain life insurance? 1. No. Because non-working parents/care providers don't earn an income, they are ineligible for life insurance coverage. 2. Yes. Although non-working parents/care providers don't earn an income, they still provide massive financial value to the household.

2. Yes. Although non-working parents/care providers don't earn an income, they still provide massive financial value to the household.

Individual long-term disability insurance is typically more expensive than group disability insurance because 1. It generally insures more of the policyowner's income than a group policy. 2. You determine the type of policy, the definition of disability, the terms of the policy, and you are able to take it with you. 3. People only buy individual policies if they are not in good health and can't qualify for the group policy. 4. It always provides benefits for a longer amount of time than a group policy.

2. You determine the type of policy, the definition of disability, the terms of the policy, and you are able to take it with you.

All of the following are rewards of sound financial planning EXCEPT: 1. Control spending 2. Maintain and improve standard of living 3. Accumulating Debt 4. Accumulate Wealth

3. Accumulating Debt

Underwriting typically involves detailed questions relating to an individual's___ 1. Medical history 2. Financial situation 3. All answers are correct. 4. Behavior

3. All answers are correct.

Based on life insurance underwriting, which of the following outcomes are possible? 1. A policy is not issued. 2. A policy is issued with higher premium than the original quote. 3. All are possible. 4. A policy is issued without changes from the original quote.

3. All are possible.

Which of the following best describes the definition of a peril? 1. Consequence of loss. 2. Extent of coverage. 3. Cause of loss.

3. Cause of loss.

Out-of-pocket limit include 1. Out-of-network care and services 2. Monthly premiums 3. Coinsurance 4. Amounts spent on services not covered by your plan

3. Coinsurance

___ is the amount you pay for covered health care services before your insurance plan starts to pay. 1. Premium 2. Copayments 3. Deductible 4. Coinsurance

3. Deductible

___ is the individual upon whom a life insurance policy is being placed. 1. Policyowner 2. Beneficiary 3. Insured

3. Insured

Which of the followings is incorrect? 1. One may calculate their disability insurance need by adding their total annual expenses and total annual savings target. 2. Insurance agents are paid on commission. They are not compensated unless you purchase a product. 3. Many group policies are paid with after-tax dollars. If these policies pay a benefit, it will not be counted as taxable income. 4. In terms of medical underwriting, if you enroll in group disability insurance, you may not need to answer medical questions

3. Many group policies are paid with after-tax dollars. If these policies pay a benefit, it will not be counted as taxable income.

Regarding whole life insurance, which of the following is not true? 1. All else being equal, whole life insurance is typically more expensive than term life insurance. 2. Coverage is in place for the duration of life. 3. Sometimes referred to as "pure insurance." 4. Premium payments do not increase.

3. Sometimes referred to as "pure insurance."

Which of the following is not true? 1. Human life value is the present value of a person's estimated future earnings that will be used to support dependents. 2. Income Multiplier Method suggests a life insurance need based on a multiplier of an individual's income. 3. The amount of life insurance recommended by differing approaches are usually same. 4. Understanding what clients hope to accomplish with their life insurance plan is a key first step.

3. The amount of life insurance recommended by differing approaches are usually same.

When the economy is at its lowest point, what is that called? 1. Contraction 2. Expansion 3. Trough 4. Peak

3. Trough

Which of the following accurately describes the taxation of disability insurance benefits? 1. When premiums are paid with after-tax dollars, the benefits are generally taxable. 2. Benefits are always taxable for amounts received above $5,000. 3. When premiums are paid with after-tax dollars, the benefits are generally not taxable. 4. When premiums are paid with pre-tax dollars, the benefits are generally not taxable.

3. When premiums are paid with after-tax dollars, the benefits are generally not taxable.

Each of the following are generally excluded perils in home insurance coverage, except . . . 1. flood 2. earthquake 3. fire 4. war

3. fire

___ provides "blanket" or scheduled coverage of expensive personal property not adequately covered by standardized homeowner's policy. 1. home insurance 2. umbrella policy 3. personal property floater 4. coinsurance

3. personal property floater

According to the lecture, life insurance is essentially 1. A contract in which a policyowner makes premium payments in exchange for a promise from the insurance company to pay a death benefit at the time of the beneficiary's passing. 2. A contract in which an insured person makes premium payments in exchange for a promise from the insurance company to pay a death benefit at the time of the policyowner's passing. 3. A contract in which a beneficiary makes premium payments in exchange for a promise from the insurance company to pay a death benefit at the time of the insured's passing. 4. A contract in which a policyowner makes premium payments in exchange for a promise from the insurance company to pay a death benefit at the time of the insured's passing.

4. A contract in which a policyowner makes premium payments in exchange for a promise from the insurance company to pay a death benefit at the time of the insured's passing.

Which of the following factors affect home insurance costs? 1. Construction materials 2. Proximity to fire hydrant 3. Crime rates 4. All answers are correct.

4. All answers are correct.

Each of the following describe reasons for the purchase of renter's insurance, except 1. The renter would like to cover their personal property replacement costs arising from damages or theft. 2. The renter's lease likely limits the landlord's liability for the renter's property. 3. Personal belongings of the renter are not typically covered by the property owner's insurance. 4. All of the answers are reasons to purchase renter's insurance.

4. All of the answers are reasons to purchase renter's insurance.

Own occupation definitions of disability differ from the any occupation definition in that 1. Benefits are not payable when the insured is unable to perform the material and substantial duties of their occupation at the time of disability. 2. The own occupation definition requires that the insured be unable to perform the material and substantial duties of any occupation. 3. The any occupation definition of disability requires that the insured be unable to perform the material and substantial duties of their occupation at the time of disability. 4. Benefits are payable when the insured is unable to perform the material and substantial duties of their occupation at the time of disability.

4. Benefits are payable when the insured is unable to perform the material and substantial duties of their occupation at the time of disability.

___ is a policy provision that helps policy benefits keep pace with inflation, up to a certain inflation rate 1. Partial Disability Benefit Rider 2. Graded Premium Rider 3. Future Increase Option Rider 4. Cost of Living Adjustment Rider

4. Cost of Living Adjustment Rider

___ is a sum of money the life insurance company agrees to provide to a designated beneficiary at the passing of the insured. 1. Pure insurance 2. Cash value 3. Premium 4. Death benefit

4. Death benefit

Which of the following does NOT accurately describe the characteristics of real and personal property? 1. Personal property includes tangible property. 2. Real property includes things permanently attached to the land such as garages. 3. Real property includes land. 4. Personal property includes land, as well as assets attached to the land.

4. Personal property includes land, as well as assets attached to the land.

Which of the following is not a characteristic of group disability insurance? 1. Cheaper in comparison to individual policies 2. May not have as favorable definition of disability 3. Generally covers ~60% of gross income from job 4. Purchased from an insurance agent.

4. Purchased from an insurance agent.

Health Savings Accounts are cool because 1. Contributions may be invested and will grow tax-free. 2. After age 65, distributions may be taken for any reason without penalty, but will be subject to ordinary income tax. 3. Contributions reduce taxable income. 4. Distributions are tax-free when used to pay for qualifying medical expenses. 5. All answers are correct.

5. All answers are correct.

If you are involved in an accident, you should 1. Contact your insurance agent as soon as safe to do so. 2. Obtain the driver's license, insurance policy numbers, and license plates of all parties involved when safe to do so. 3. Obtain the names, addresses, and phone numbers of all parties involved (including witnesses of the accident) when safe to do so. 4. Contact the police as soon as safe to do so. 5. All answers should be taken if you are involved in an accident.

5. All answers should be taken if you are involved in an accident.

All of the following are a type of financial planner EXCEPT: 1. Commission 2. Fee-Based 3. Compensation-Based 4. Fee-Only

Compensation-Based