Personal Finance Chapter 8

Generally, the primary purpose of life insurance is to provide a tax-advantaged investment plan.

False

Risk avoidance involves asking an insurance company to take over the risk for a small payment (the premium).

False

The life insurance needs of beneficiaries are secondary since most proceeds are paid to policyholders.

False

Underwriters can predict whether or not you will suffer a loss this year.

False

_____ involves abstaining from any activity that will affect an individual financially.

Risk avoidance

Which of the following is true of risk avoidance?

Risk avoidance is any activity that helps evade an act that creates a risk.

An individual's need for additional life insurance can be determined by looking at the difference between his or her family's available financial resources after his or her death and his or her family's total economic needs.

True

Avoiding alcoholic beverages while driving is an example of loss prevention.

True

Life insurance proceeds paid to your heirs are not usually subject to state or federal income taxes.

True

Risk avoidance is attractive when the cost of avoidance is less than the cost of handling it some other way.

True

The need for life insurance increases with children.

True

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

Which of the following is true of insurance underwriting?

Underwriters design rate classification schedules so that people pay premiums that reflect their chance of loss.

Insurance is a tool that can reduce one's _____ risk.

economic

The primary purpose of life insurance is to provide:

financial security for dependents in the event of death.

A(n) _____ policy is a contract between an individual and a company under which the company agrees to reimburse the individual for losses suffered by him or her according to specified terms.

insurance

The probability of a loss occurring can be reduced by_____.

loss prevention

Insurance companies make profit by:

paying out less than the sum of the premiums and the earnings on them.

The basic purpose of insurance is to _____.

protect yourself from economic losses

The purchase of insurance is a common form of _____ by the insured.

risk transfer

The underwriting function of insurance companies is designed to ensure that premiums are based on_____.

the chance of losses

Underwriting refers to _____:

the determination of which exposures to insure

Insurance underwriting is best described as:

the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums

Insurance companies use actuarial data to measure:

the risk of loss for a given population.

From the standpoint of a person buying insurance, the central purpose of insurance should be:

to transfer the risk of serious losses.