Ch. 12 Life Insurance Planning T/F
A life insurance policy irrevocably lapses when the premium is not paid by the stated due date. True False
False
A return-of-premium rider is an attractive way to invest via life insurance. False True
False
A survivorship joint life policy pays when the first insured dies. True False
False
A disadvantage of first-to-die life insurance policies is that the survivor will have no coverage after the death of the first person. False True
True
The need for life insurance is usually low during retirement. True False
True
Underwriting is the process of insurance companies creating rate classification schedules to help decide whom they will insure and how much to charge. True False
True
Variable-universal life insurance policies have more flexibility than either universal or variable life insurance. True False
True
Viatical companies specialize in buying cash-value life insurance policies from terminally ill persons so that they can receive funds prior to their death. True False
True
When purchasing a term life policy, it is generally best to purchase a guaranteed renewable policy. False True
True
A typical life insurance agent would use a premium quote service to help you find a low-cost life insurance policy. True False
False
Cash dividends are paid only on cash-value life insurance policies. False True
False
Life insurance sold on-line should be avoided. True False
False
The time limit specified on a suicide clause is generally five years. True False
False
The type of cash-value life insurance that allows you to increase the face value amount without buying a new policy is called modified life insurance. True False
False
Variable life insurance is also called flexible-premium variable life insurance. True False
False
Whenever the cause of death for an insured person is suicide the company will simply refund the collected premium. False True
False
The cash value of a variable life insurance policy can fluctuate up and down. True False
True
The cost of replacing the household labor of a stay-at-home spouse should be included in life insurance planning. False True
True
The face value of an insurance policy is never received by the beneficiary when the interest income settlement option is chosen. True False
True
The guaranteed insurability option permits (for an extra cost) the cash-value policyholder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability. True False
True
The largest potential financial loss resulting from premature death is lost income. False True
True
The multiple-of-earnings approach consists of multiplying one's income by some factor to derive an estimate of the amount of life insurance needed. True False
True
The needs-based approach to estimating life insurance coverage considers all of the factors that might affect the level of need. False True
True
The policyholder may increase or decrease the amount of premium paid with a variable life insurance policy. True False
True
The premium for a term insurance policy can increase with each renewal of the contract. True False
True
The premiums for a $100,000, 20-year, decreasing term policy would be less than the premiums for a $100,000, 20-year policy with a fixed face value, other things being equal. False True
True
Cash dividends on life insurance policies are considered taxable as income by the IRS. False True
False
Young parents should focus on cash-value life insurance to meet their life insurance needs. False True
False
A growing number of life insurance companies now make a policy's death benefit available to a terminally ill insured. True False
True
A modest funeral can easily cost more than $10,000. False True
True
If losses from a premature death exceed resources available, life insurance is probably needed. False True
True
You should be contributing the maximum into any available tax-sheltered retirement plan before you consider cash-value life insurance as a retirement savings vehicle. False True
True
Younger families should be wary of using retirement money for living expenses after the death of an income provider. True False
True
Your need for life insurance will change significantly over the course of your life cycle. True False
True
Cash-value accumulations in life insurance are taxed as they are earned. False True
False
Convertible term insurance allows one to change the policy from the life of one person to that of another person without proving insurability. True False
False
Life insurance is the best way to address the "living-too-long" problem. True False
False
Life insurance needs typically increase while assets decrease over the course of one's life. True False
False
Married couples should integrate their life insurance plans and combine their life insurance needs in one policy on the life of one of the spouses. True False
False
Premium payments for a cash-value life insurance policy are tax deductible. False True
False
Since homemakers do not have money income, no financial loss results from the premature death of a homemaker. False True
False
Social Security survivor's benefits end when the youngest child reaches age 21 or graduates from college, whichever comes first. False True
False
Term insurance is more profitable for the life insurance companies and agents than cash-value insurance. False True
False
Term life insurance costs far more than cash-value life insurance. True False
False
The annual premiums for limited-pay policies are lower than those for whole-life policies, other factors being equal. True False
False
The beneficiary retains all rights and privileges granted by a life insurance policy, including the right to amend the policy and the right to designate who receives the proceeds. False True
False
The death benefit of a life insurance policy is always the same amount as the face value. False True
False
The insured person retains all rights and privileges granted by a life insurance policy, including the right to amend the policy and the right to designate who receives the proceeds. True False
False
The major reason that people buy life insurance is to protect the person whose life is insured. True False
False
The need for life insurance is high until your first child is born. True False
False
The needs-based approach is not as accurate as the multiple-of-earnings approach. True False
False
The premiums on a five-year level-premium, guaranteed renewable term policy would increase annually. True False
False
The price people pay for life insurance depends on their age, health, and income. False True
False
The primary reason for buying life insurance is to obtain a high-quality investment. False True
False
The purpose of life insurance is to protect the person on whose life an insurance policy is issued. True False
False
The rate of return on cash-value life insurance has historically been well ahead of what can be achieved by a diversified portfolio of stock and bond mutual funds. False True
False
When a life insurance policy has both a beneficiary and a contingent beneficiary, these two persons will divide the proceeds of the policy equally after the death of the insured person. True False
False
When the insured dies, the beneficiary receives both the face value and the cash value of a cash-value life insurance policy. True False
False
With a universal life policy, the current rate of return is paid on total premiums paid into the policy. False True
False
A single-premium life insurance policy is an extreme form of a limited-pay life policy. False True
True
A survivor's blackout period is the time frame between when a deceased person with minor children stops receiving Social Security survivor benefits and when he or she begins receiving retirement benefits. True False
True
A survivorship joint life policy pays when the last person covered dies. True False
True
A young, healthy person may be able to buy term life insurance privately at lower premiums than through a group policy. True False
True
Adjustable life insurance policies allow changes with no added proof of insurability. False True
True
Affordability is a benefit of layering term life insurance policies. False True
True
An incontestability clause places a time limit on the right of an insurance company to deny a claim. True False
True
As a family matures, savings and investments may exceed potential losses from premature death and reduce or eliminate the need for life insurance. True False
True
Buying cash-value life insurance is a method of forced savings. True False
True
Cash dividends are paid only on participating life insurance policies. False True
True
Cash-value insurance is more expensive than term life insurance because of the savings element included in the cash-value policy. False True
True
Cash-value life insurance is sometimes called permanent insurance. False True
True
Cash-value life insurance policies generally provide a policy illustration that charts the projected growth in the cash value for given rates of return. True False
True
Convertible term offers the policyholder the option of exchanging a term policy for a cash-value policy without evidence of insurability. True False
True
Credit term life insurance is generally more expensive per dollar of coverage than similar types of term insurance. True False
True
Endorsements are amendments and additions to the basic insurance policy. True False
True
If an insured falsely claims to be a nonsmoker to get life insurance at a lower premium, the insurance company could deny a request for payment of the death benefit. True False
True
If one is adequately insured, there is no need for a multiple indemnity clause. False True
True
If you borrow the cash value of your life insurance policy, any amount owed will be subtracted from the face amount of the policy should you die. False True
True
If you receive income from a former spouse through either alimony or child support, life insurance on that person is advisable. False True
True
Life insurance proceeds are nontaxable to the beneficiary. True False
True
Limited-pay whole life insurance is whole life insurance that allows premium payments to cease before you reach the age of 100. True False
True
Modified life insurance is a form of life insurance for which the insurance company charges reduced premiums in the early years and higher premiums thereafter. True False
True
Modified life insurance is primarily designed for people whose life insurance needs are high but who cannot yet afford the high cost of cash-value life insurance. False True
True
Nonforfeiture values are amounts stipulated in a life insurance policy that protect the value, if any, in the event that the policyholder chooses not to pay or fails to pay the required premiums. False True
True
Once a life insurance policy has been in effect for two years, the company cannot deny a claim because of errors in the application. False True
True
Once a life insurance policy is issued, the insurance company cannot refuse to pay a death benefit. True False
True
Parents with minor children almost always need life insurance. False True
True
People with hazardous occupations (police officers) or dangerous hobbies (skydivers) are sometimes required to pay higher insurance premiums. True False
True
Some variable return life policies pay both the face amount and the accumulated cash value on the death of the insured party. True False
True
Surviving spouses under age 60 may only collect Social Security survivor's benefits if there are also surviving children under age 18. True False
True
Term life insurance is often described as pure protection because it pays benefits only if the insured person dies within the time period of the policy. False True
True
The amount of Social Security benefits received by survivors depends on the amount of income earned during the lifetime of the deceased that was subject to Social Security taxes. True False
True
The application for life insurance becomes an actual part of the life insurance policy/contract. False True
True
The basic information about who is covered, the time period of coverage and the policy limits are contained in the insuring agreements section of a life insurance policy. True False
True
The premiums for newly purchased cash-value policies are always higher than those for term policies providing the same amount of coverage. True False
True
The principal borrowed from a cash-value life insurance policy can remain outstanding until the insured dies. True False
True
The rate at which cash value accumulates depends on the rate of return earned. False True
True
Universal life insurance provides both the pure protection of term insurance and the cash-value buildup of whole life insurance. True False
True
Whole life insurance is a form of cash-value life insurance that provides lifetime insurance protection and expects you to pay premiums for life. False True
True
With cash-value life insurance the actual amount of insurance goes down over time while the amount of investment value goes up with the two components adding up to the face amount of the policy. False True
True
You can buy life insurance designed specifically to pay off a home mortgage should the borrower pass away. True False
True
