INS 211 CH 11

Sarah is using the needs approach to determine how much life insurance to buy. Her cash needs are $30,000; her income needs are $140,000; and special needs are $100,000. Sarah has the following assets: $20,000 in bank accounts, $30,000 in retirement plans, and $40,000 in investment accounts. Sarah owns no individual life insurance. She is covered by a $50,000 group life insurance policy through her employer. Based on this information, how much additional life insurance should Sarah purchase?

$130,000

Julian, age 45, would like to determine how much life insurance to purchase using the human life value approach. He assumes his average annual earnings over the next 20 years will be $40,000. Of this amount, $20,000 is available annually for the support of his family. Julian will generate this income for 20 more years and he believes that 5 percent is the appropriate interest (discount) rate. The present value of one dollar payable for 20 years at a discount rate of 5 percent is $12.46. What is Julian's human life value?

$249,200

What is the length of the readjustment period which is considered when the needs approach is used to determine the amount of life insurance to own?

1 to 2 years

Which of the following $100,000 whole life insurance policies, issued by the same company to a man age 32, would require the highest first-year premium?

10-payment whole life

All of the following are defects which limit the usefulness of the human life value approach in determining the correct amount of life insurance to purchase EXCEPT:

Earnings during the individual's productive lifetime are ignored.

Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are) true? I. It involves an analysis of various family needs which must be met if a family breadwinner dies. II. Its use is appropriate only if a person currently has no life insurance protection.

I only

Which of the following statements about life insurance cash values is (are) true? I. Cash values are a result of the level premium method of purchasing life insurance. II. The cash value of a policy must always exceed the policy's legal reserve.

I only.

Which statement is true concerning the economic problem of premature death in the United States? I. The economic impact of premature death of the breadwinner varies for different types of families. II. Increased life expectancy has increased the economic problem of premature death over time.

I only.

The purchase of term insurance is justified by which of the following circumstances? I. The insured wants to save money through the policy for a specific need. II. The insured has a temporary need for life insurance protection.

II only

Which of the following statements about a variable universal life insurance policy is (are) true? I. There is a minimum guaranteed interest rate for the cash value. II. The policyowner has a variety of investment options for the savings component of the policy.

II only

Which of the following statements about universal life insurance is (are) true? I. The current interest rate credited to the cash value at the time the policy is issued remains fixed for the life of the policy. II. A monthly deduction is made from the policy's cash value for the cost of insurance protection.

II only.

Which of the following statements about variable universal life insurance is (are) true? I Variable universal life insurance has fixed premium payments. II. Variable universal life insurance allows the policyowner to decide where the premiums are invested.

II only.

All of the following statements about employer-provided group life insurance are true EXCEPT

Individual evidence of insurability, through a medical exam, is usually required.

All of the following statements about current assumption whole life insurance are true EXCEPT:

It is a form of participating whole life insurance that pays annual dividends.

Which of the following statements regarding convertible term insurance is true?

The annual premium for the cash value coverage is lower if an original-age conversion is used than if an attained-age conversion is used.

Which of the following statements about a decreasing term insurance policy is true?

The face amount of the policy decreases during the policy period, but the premium remains level.

All of the following statements about ordinary life insurance are true EXCEPT:

The face amount of the policy is paid if the insured lives to age 65.

Which of the following statements about variable life insurance is true?

The policyowner has the option of investing the cash value in several investment accounts.

Which of the following types of families is likely to have the least need for a large amount of life insurance?

a single person family

Bill is attempting to determine how much life insurance to purchase. He has two dependent children and his wife does not work outside of the home. An advisor suggested that Bill should consider Social Security benefits when doing his life insurance planning. One concern in this regard is the period after Social Security benefits to a widow terminate until they resume again. This period is called the

blackout period.

The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the

blackout period.

Which of the following is a cost/expense that an estate clearance fund is designed to pay?

burial expenses

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?

conversion provision

Dave purchased a life insurance policy. The policy is nonparticipating and the cash values are based on the insurer's present mortality, investment, and expense experience. After 2 years, the insurer will recalculate the premium based on the mortality, investment, and expense experience at that time. Dave purchased:

current assumption whole life.

A common use of second-to-die life insurance is:

estate planning.

A legal reserve in life insurance is a result of:

excess premiums in the early policy years being invested at compound interest.

The net amount at risk for an ordinary life insurance policy is the difference between the:

face amount of the policy and the legal reserve.

To calculate a human life value, it is necessary to deduct certain costs from a person's average annual earnings. These costs include:

income taxes.

Gwen purchased an interesting life insurance policy. A minimum interest rate is guaranteed on the cash value, but additional interest may be credited based on the investment performance of a group of common stocks. There is also a cap on the additional interest credited to the policy. Based on this information, what type of life insurance did Gwen purchase?

indexed universal life insurance

A whole life insurance policy in which premiums are reduced for an initial period (e.g. 3 years) and are higher thereafter is an example of a:

modified life policy.

Alex, age 26, purchased a 20-payment whole life insurance policy. After Alex has made 20 premium payments, his life insurance policy is considered:

paid-up.

The human life value is defined as the:

present value of the family's share of a deceased breadwinner's future earnings.

Jessica is an agent for LMN Life Insurance Company. She met with Brad, who was interested in purchasing life insurance. Jessica explained the various uses of life insurance, including income for Brad's wife during the 1- or 2-year period following Brad's death. This period is known as the:

readjustment period.

Which of the following pieces of information is needed to calculate a person's human life value?

the person's cost of self-maintenance.

Ann is considering the purchase of a life insurance policy with these characteristics: flexible premium payments, the insurance and savings components are separate, the interest rate credited to the cash value is tied to a changing market interest rate but a minimum interest rate is guaranteed, and a monthly administrative fee is charged. Ann is considering buying:

universal life insurance.

Under the needs approach, when is the dependency period of a surviving spouse assumed to end?

when the youngest child reaches age 18