Chapter 5 Exam: Life Insurance Premiums, Proceeds, and Beneficiaries

What is the price of insurance for each exposure unit? a. Rate b. Premium c. Rating d. Expense

a. Rate The price of insurance for each exposure unit is called the rate.

Which of these is the automatic mode of settlement for life insurance policy proceeds? a. fixed period b. interest only c. Extended term d. lump-sum

d. lump-sum The lump-sum cash settlement is considered the automatic (or "default") option for most life insurance contracts.

Insurance program is determined by each of the following factors EXCEPT a. Mortality b. Interest c. Expenses d. Liquidity

d. Liquidity All of these are factors which determined insurance premiums EXCEPT "liquidity."

Mortality is calculated by using a large risk pool of a. hobbies and time b. people and time c. family history and geographical area d. insurance companies and agents

b. people and time Mortality is based on a large risk pool of people and time.

Which of the following is NOT a life insurance settlement option? a. lump sum option b. Fixed amount option c. Life income option d. Extended term option

d. Extended term option All of these are life insurance settlement option EXCEPT "Extended term option."

When calculating life insurance premium rates, which component would an agent's commission fall under? a. Morbidity b. Mortality c. Insurer's expenses d. Occupation

c. Insurer's expenses The agent's commission is considered part of the insurer's expenses and is a component of the premium.

Which of the following is NOT a component of determining policy premiums? a. Dividends b. Mortality c. Interest d. Expenses

a. Dividends Dividends are not a component when determining policy premiums.

How are death benefits that are received by a beneficiary normally treated for tax purposes? a. Taxable at the beneficiary's current tax bracket b. Subject to state and local taxes only c. Exempt from federal income taxes d. Taxable as a capital gain

c. Exempt from federal income taxes Death benefits that are received by a beneficiary are generally exempt from federal income tax.

Premiums are best described as a. money paid by the insurer for settling a claim b. money paid by the insured to acquire a policy's benefits c. the amount an insured pays per unit of coverage d. commissions payable to the writing agent

c. the amount an insured pays per unit of coverage Premiums can be best defined as the amount an insured pays per unit of coverage.

When calculating life insurance premium rates, which component is affected by an insured's age and gender? a. Insurer's expense b. Morbidity c. Investments d. Mortality

d. Mortality Mortality is the component of a life insurance premium that age and gender affects.

Purchasing a life insurance policy in order to avoid the forced sale of assets upon death is called a. estate funding b. capital withholding c. capital gains d. estate conservation

d. estate conservation Estate conservation involves purchasing life insurance to avoid the forced sale of asset upon death.

A spendthrift clause in a life insurance policy a. permits the beneficiary to borrow form a policy's cash value b. evenly distributes benefits among all named living beneficiary dies before the insured. c. assigns a policy's face amount to the insured's estate if the beneficiary dies before the insured. d. restricts the ability of the beneficiary to assign benefits

d. restricts the ability of the beneficiary to assign benefits A spendthrift clause prevents a beneficiary form recklessly spending benefits.

Which of the following describes the number of deaths in a year compared to the number of people in a select group? a. law of large number ratio b. Mortality rate c. morbidity rate d. Risk ratio

b. Mortality rate The number of deaths during a year compared with the total number of persons exposed in the class is known as the mortality rate.

Pam is the primary beneficiary of a life insurance policy and wants to let the death benefit accumulate and receive only the monthly investment proceeds. Which settlement option should she choose? a. lump sum option b. interest option c. life income option d. fixed amount option

b. interest option In this situation, the beneficiary should select the interest option.

Which of the following is NOT an insurer policy expense? a. Rent b. Salaries d. Commissions e. Premiums

e. Premiums Insurance companies are like any other business. They have operating expenses which need to be factored into the premiums. This includes expenses such as salaries, agent compensation, rent, legal fees, postage etc.