Ch. 8 Finance
Insurance is a tool that can reduce one's _____ risk. mental exposure accident social economic
economic
A(n) _____ is a common provision in many term policies. arbitration clause limited risk clause loss prevention clause renewable clause reward clause
renewable clause
Group life insurance is most likely to be for a. special purpose b. a term c. variable life d. whole life
b. a term
Insurance agents always disclose their commissions in an insurance policy. false true
false
The purchase of insurance is a common form of _____ by the insured. risk avoidance loss prevention loss control risk assumption risk transfer
loss prevention
It is not possible to avoid risks in your life loss control making investments accumulating savings
risks in your life
A(n) _____ policy is a type of term insurance. risk assumption whole life increasing term variable term straight term
straight term
While performing needs analysis, when determining the available resources to offset the economic needs, you would generally ignore: Social Security benefits. the employer-provided group life insurance. savings corpus. the earning potential of the surviving spouse. the educational qualification of the children.
the educational qualification of the children.
It is advisable to purchase life insurance from an insurance company that has been in business for at least _____ years. 15 10 19 25 5
25
In order to predict the number of losses that will occur in a given time accurately, insurance companies must study a a. medium b. negligible c. small d. large numbers of cases.
d.large
A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary, which means that _____. the life insurance company makes additional payments to the family of the insured so that they continue to live comfortably the life insurance proceeds are paid directly to named beneficiaries after payment of state or federal income taxes the cash benefits are remitted to the beneficiary only after the beneficiary pays estate taxes the life insurance proceeds are invested as premiums for the life insurance of the beneficiary the cash benefits from your life insurance policy cannot be claimed by creditors
the cash benefits from your life insurance policy cannot be claimed by creditors
Insurance companies use actuarial data to measure: the consumer price index of a given population. the wealth of a given population. the creditworthiness of a given population. the gross productivity of a given population. the risk of loss for a given population.
the risk of loss for a given population.
From the standpoint of a person buying insurance, the central purpose of insurance should be: to reduce payouts for the small risks taken. to transfer the risk of serious losses. to contribute to charitable purposes. to collect for all accidental losses. to profit from uncertain future events.
to transfer the risk of serious losses.
Guaranteed renewable term insurance allows you to renew a policy for another term without qualifying medically. true false
true
Only one agent should be consulted for discussing personal financial needs and insurance requirements while buying life insurance. false true
true
Social Security survivor's benefits are intended to provide basic, minimum support to families faced with the loss of the principal wage earner. true false
true
The availability of group coverage through employee benefit programs should be considered when developing a life insurance program. true false
true
Underwriters can predict whether or not you will suffer a loss this year. false true
true
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 false
true
Insurance companies use _____ to determine whom they will insure and what they will charge for the coverage. the needs analysis method underwriting loss control risk assumption Social Security survivor's benefits
underwriting
It can be difficult to evaluate the true cost of a _____ at the time of purchase. whole life insurance term life insurance universal life insurance mortgage life insurance variable life insurance
universal life insurance
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? $2,500,000 $1,500,000 $500,000 $2,000,000 $1,000,000
$1,000,000
is any activity that lessens the severity of loss once it occurs.
loss control
The most accurate way to determine how much life insurance you need is to use the ___________ method. a. multiple-of-earnings b. disposable income c. needs analysis d. DuPont analysis
. needs analysis
A life insurance agent who takes her profession seriously is likely to have earned a professional certification like the
Chartered Life Underwriter
______________ an effective way to handle small exposures to loss when insurance is too expensive. Loss assumption Risk assumption Loss control Risk prevention
Risk assumption
Which of the following types of insurance policies provides temporary coverage for a set period? Term life insurance policy Extended life insurance policy Universal life insurance policy Variable life insurance policy Whole life insurance policy
Term life insurance policy
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 net annual earnings of the insured by some selected number. 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. The multiple-of-earnings method determines the amount of tax benefits available to the insured when the life insurance coverage is availed. 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. The multiple-of-earnings method considers the insured's financial obligations to compute the insurance premium amount.
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.
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 false
True
_____ 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. a. The needs analysis method b. The liabilities analysis method c. The borrowings analysis method d. The earnings analysis method e. The savings analysis method
a. The needs analysis method
Underwriting refers to _____: a. the determination of which exposures to insure. b. restoring the claimant to the financial condition prior to loss. c. a method for developing policy wording. d. the payment of a claim. e. selling insurance at a premium less than that of the competitors.
a. the determination of which exposures to insure.
The insurance portion of a universal life policy is most analogous to: a. variable insurance. b. term insurance. c. whole life insurance. d. mortgage insurance. e. group insurance.
b. term insurance.
Underwriters can predict whether or not you will suffer a loss this year. false true
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. convertible whole life renewable premium whole life single premium whole life continuous premium whole life limited payment whole life
limited payment whole life
Term life insurance is characterized by _____. non-convertibility premium amounts related to the age of the insureds level annual premiums throughout one's life its inappropriateness for most people's life insurance needs cash value accumulation
premium amounts related to the age of the insureds
Which of the following is a characteristic of a universal life insurance policy? Lighter fees than other insurance policies No flexible premiums No choice in how the accumulation account is invested Fixed premiums and protection levels Absence of a savings feature
No choice in how the accumulation account is invested
A life insurance policy with a small face amount where the premium may be collected weekly by agents is termed _____. mortgage life insurance group life insurance credit life insurance industrial life insurance special purpose insurance
industrial life insurance
The settlement option chosen by most policyholders is: life income. interest only. lump sum. fixed time. fixed amount.
lump sum.
Which of the following is a characteristic of a universal life insurance policy? No flexible premiums No choice in how the accumulation account is invested Lighter fees than other insurance policies Fixed premiums and protection levels Absence of a savings feature
No choice in how the accumulation account is invested
The insured of life policy dies. The primary and contingent beneficiaries have died previously. The insurance company does what with the death benefits a. Keeps the benefits. NO payment to anyone b. Pays the benefits to the insured's estate c. Pays to the primary beneficiary's next of kin.
b. Pays the benefits to the insured's estate
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 cash benefits from your life insurance policy cannot be claimed by creditors c. the life insurance company makes additional payments to the family of the insured so that they continue to live comfortably d. the life insurance proceeds are paid directly to named beneficiaries after payment of state or federal income taxes e. the cash benefits are remitted to the beneficiary only after the beneficiary pays estate taxes
b. the cash benefits from your life insurance policy cannot be claimed by creditors
The primary purpose of a life insurance plan is to help: a. in the risk avoidance of the insured in the event of his or her untimely death. b. in the loss prevention of the insured in the event of his or her untimely death. c. in the protection of the dependents of the insured from financial loss in the event of his or her untimely death. d. in controlling the loss of the insured in the event of his or her untimely death. e. provide tax benefit to the beneficiaries of the policy in the event of the insured's untimely death.
c. in the protection of the dependents of the insured from financial loss in the event of his or her untimely death.
If a term life insurance is convertible, the policy can be: exchanged for cash. transferred to the life of another person. revised as needed by the insurer. changed to a comparable whole life policy. changed to health or disability protection.
changed to a comparable whole life policy.
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 cash benefits from your life insurance policy cannot be claimed by creditors c. the life insurance company makes additional payments to the family of the insured so that they continue to live comfortably d. the life insurance proceeds are paid directly to named beneficiaries after payment of state or federal income taxes e. 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
Which of the following represents a disadvantage of a whole life insurance policy? a. A whole life insurance policy provides only temporary coverage for a set period. b. It is difficult to evaluate the true cost of a whole life insurance policy at the time of purchase. c. A whole life insurance policy does not provide any tax advantages on accumulated earnings. d. A whole life insurance policy may require a policyholder to pay higher premiums when the policy is renewed. e. A whole life insurance policy often provides lower yields than other investment vehicles.
e. A whole life insurance policy often provides lower yields than other investment vehicles.
Generally, the primary purpose of life insurance is to provide a tax-advantaged investment plan. false true
false
Families faced with the loss of a principal wage earner receive Social Security benefits _____. after the repayment of all the financial obligations of the principal wage earner that amount to 5 to 10 times the current income of the principal wage earner after paying additional taxes on the benefit amount from the government that are intended to provide basic, minimum support that are deducted from the insurance proceeds, for the purpose of tax calculation
from the government that are intended to provide basic, minimum support
Employers often provide _____ life insurance as a fringe benefit for their employees. standard home service credit group mortgage
group
The basic purpose of insurance is to _____. protect yourself from economic losses supplement your income shield you from bad decisions protect your health protect yourself from non-financial losses
protect yourself from economic losses
Insurance companies use actuarial data to measure: the wealth of a given population. the gross productivity of a given population. the risk of loss for a given population. the consumer price index of a given population. the creditworthiness of a given population.
the risk of loss for a given population.
The need for life insurance increases with children. true false
true
The most preferred technique for determining how much life insurance coverage is needed for an individual is: using the multiple-of-earnings method adjusted for occupation. assessing the family's total economic needs and subtracting the financial resources available to meet those needs. computing the Human Life Value. estimating the sum of money which, when paid in installments, will produce the same income as the person would have earned after deducting assumed amounts for taxes and personal maintenance expenses. using the probability of death each year, prevailing interest rates, and assumed inflation rates to find the discounted present value of a future income stream.
using the multiple-of-earnings method adjusted for occupation.
Sales commissions and marketing expenses can increase the costs of a fully loaded _____ policy. universal life insurance variable life insurance whole life insurance term life insurance mortgage life insurance
whole life insurance