Chapter 11

Which of the following statements about universal life insurance is true? I. The interest rate credited to the cash value at the time of issuance remains fixed over the life of the policy. II. A monthly deduction is made from a policy's cash value for the cost of insurance protection. (a) I only (b) II only (c) both I & II (d) neither I nor II

B

Diane is a single parent. She has limited income and significant life insurance needs. Which type of life insurance makes sense for someone in this situation? (a) limited-payment whole life insurance (b) variable life insurance (c) term insurance (d) endowment insurance

C

Tamara purchased a term insurance policy when she had high life insurance needs and limited income. Now Tamara can afford whole life insurance. What term life insurance provision will permit Tamara to switch her term insurance to whole life insurance without having to show that she is still insurable? (a) renewal provision (b) tax-free exchange provision (c) conversion provision (d) free look provision

C

The NAAR for a life insurance policy is the difference between the (a) present value of future benefits and the present value of future premiums. (b) face amount of the policy and the total premiums that have been paid. (c) face amount of the policy and the legal reserve. (d) annual premium and the annual policy dividend.

C

The human life value is defined as the (a) present value of a deceased breadwinner's future gross income. (b) future value of a deceased breadwinner's past earnings. (c) PV of the family's share of a deceased breadwinner's future earnings. (d) FV of the family's share of a deceased breadwinner's future earnings.

C

Tom and Nancy Boyle provide financial support for their two children. In addition, they provide financial support for Tom's aged father and Nancy's aged mother. The Boyle family can be described as a (a) blended family. (b) single-parent family. (c) two-income earner family. (d) sandwiched family.

D

Which $50,000 life insurance contract if purchased when the insured was 32, would have the highest cash value when the insured is 50? a. whole life paid at 65 b. 10 year level term c. continuous premium whole life d. 10 payment whole life

D

Which of the following about yearly renewable term insurance is true? I. It requires evidence of insurability for renewal. II. It is most appropriate when an insured needs lifetime protection. (a) I only (b) II only (c) both I and II (d) neither I nor II

D

Which of the following statements about limited-payment life insurance is true? (a) It is a form of term insurance. (b) It matures at the end of the premium-paying period. (c) The premium decreases each year during the premium-paying period. (d) Its use may be appropriate if a person wants paid-up life insurance by retirement.

D

Which of the families below is likely to have the least need for a large life insurance policy? (a) a blended family (b) a traditional family (c) a single person family (d) a sandwiched family

C

Which statement is true concerning premature death and life expectancy? I. Life expectancy has increased in the U.S. over the last century. II. Surviving family members may experience a reduction in their standard of living if the family breadwinner dies prematurely. (a) I only (b) II only (c) both I & II (d) neither I or II

C

How do premiums for yearly renewable term insurance change as an insured gets older? (a) They increase at an increasing rate. (b) They increase at a decreasing rate. (c) They decrease at a constant rate. (d) They remain level.

A

Which of the following about the use of ordinary life insurance is true? I. Its use is appropriate if a person needs lifetime insurance protection. II. It enables a person to purchase significantly more insurance than if the same premium were used to purchase term insurance. (a) I only (b) II only (c) both I & II (d) neither I nor II

A

Which of the following statements about endowment policies is true? I. The face amount is paid if the insured dies during the policy period or at the end of the period if the insured is still alive. II. The use of endowment insurance has increased in recent years. (a) I only (b) II only (c) both I & II (d) neither I nor II

A

All of the following statements about ordinary life insurance are true EXCEPT (a) Premiums are level throughout the policy period. (b) The face amount of the policy is paid if the insured lives to age 65. (c) There is a buildup of CV that can be borrowed by the policyowner. (d) It offers policyowners flexibility to meet a variety of financial goals.

B

All of the following statements about universal life insurance are true EXCEPT (a) Interest is credited monthly to a policy's cash value. (b) Any withdrawal of cash value reduces the death benefit. (c) Interest credited to a policy's cash value is taxable to the policyowner in the year credited. (d) The policyowner can add to a policy's cash value at any time subject to policy guidelines.

C

The purpose of an estate clearance fund is to pay all of the following EXCEPT (a) burial expenses. (b) estate administration expenses. (c) education costs. (d) installment debts.

C

Rachel needs permanent life insurance. Which method makes the most sense for her to employ? (a) capital retention approach (b) level-premium method (c) human life value method (d) yearly renewable term

B

James purchased yearly renewable term insurance. All of the following are common characteristics of this coverage EXCEPT (a) Evidence of insurability is not required to renew the coverage. (b) Cash value accumulation is slow to moderate. (c) The number of times the coverage can be renewed is limited. (d) Premiums increase at an increasing rate upon renewal

B

Which of the following about a VUL insurance policy is (are) true? I. There is a minimum guaranteed interest rate on all sub-accounts. II. The policyowner has a variety of options for investment of the cash value. (a) I only (b) II only (c) both I & II (d) neither I or II

B

Which of the following about decreasing term insurance is true? (a) Face amount decreases during the policy period; premiums increase. (b) Face amount decreases during the policy period, but premiums remain level. (c) Premium decreases during the policy period, but the face amount remains level. (d) Both the premium and face amount of the policy decrease during the policy period.

B

Which of the following statements about a life insurance policy is (are) true? I. It is a policy of indemnity. II. The insured event is the uncertainty regarding the time of death. (a) I only (b) II only (c) both I and II (d) neither I nor II

B

Carl would like to purchase life insurance. He would also like to invest in a mutual fund. An agent told Carl about a form of life insurance in which Carl could select where the savings component is invested. This form of life insurance has fixed premiums and the cash value is not guaranteed. This type of life insurance is called (a) universal life insurance. (b) current assumption whole life. (c) variable life insurance. (d) indeterminate-premium whole life.

C

Alex, age 26, purchased a 20-payment whole life insurance policy. After Alex has made 20 premium payments, his life insurance policy is considered (a) matured. (b) reduced. (c) expired. (d) paid-up.

D

All of the following statements about term insurance are true EXCEPT (a) The insurance provides protection for a temporary period of time. (b) Most policies can be renewed without evidence of insurability. (c) Most policies can be converted to a permanent life insurance policy. (d) Most policies have a CV that is refunded when coverage ceases.

d