RISK QUIZ 2

An individual has decided to purchase life insurance and comes to you as his agent. In order to propose a plan of life insurance to meet his individual needs, your first step would be to:

Conduct a needs analysis.

Fred is 30 years old and recently began a job with a salary of $60,000. He is single but has been dating Lisa for 3 years. He expects to marry her within the next 5 years. Fred lives with his parents. What is the amount of life insurance that Fred currently needs?

$0

Which one of the following statements concerning universal life insurance is false?

The death benefit of a universal life insurance policy is fixed.

Betty owns a $150,000 whole life participating insurance policy that she purchased ten years ago. She has paid premiums of $4,000 each year since she bought the policy, and the current cash surrender value is $60,000. Betty has received $10,000 in paid dividends since the policy inception. Which of the following statement(s) is/are correct regarding Betty's policy? 1. If Betty surrenders the policy now, she will have a taxable gain of $30,000 taxed as ordinary income. 2. The dividends that were paid on Betty's policy were subject to ordinary income tax treatment.

1 only.

When utilizing the needs approach in the determination of the amount of life insurance, which factors should be considered? 1. The family expenses that will remain after the wage earner dies. 2. The value of the wage earner's life in the event he or she dies. 3. The income that can be generated by the surviving spouse. 4. The number of dependents.

1, 3, and 4.

Which of the following is needed to calculate the client's human-life value? 1. Average annual earnings to the age of retirement. 2. Estimated annual Social Security benefits after retirement. 3. Costs of self-maintenance. 4. Number of years from the client's present age to the contemplated age of retirement.

1, 3, and 4.

Watson, Inc. has four equal partners. All four partners are interested in entering into a buy-sell arrangement. How many life insurance policies would be purchased to properly fund using a crosspurchase agreement?

12 policies.

Which of the following statement(s) is/are correct regarding buy-sell arrangements? 1. Entity purchase arrangements increase the income tax basis for some survivors upon the death of another owner. 2. Cross-purchase arrangements increase the income tax basis for all survivors upon the death of another owner.

2 only.

Marsha, age 35, is a single mother of one daughter, Skyler, age 9. Marsha is a secretary with annual income of $35,000 and a negative net worth. Marsha has two objectives: (1) to protect Skyler in the event of her untimely death and (2) to save for her own retirement. Which of the following life insurance policies should she buy?

A 20-year term insurance policy.

Olivia, age 52, purchased a life insurance policy on her own life. All the necessary legal elements of a contract including, (1) offer and acceptance, (2) consideration, (3) competent parties, and (4) legal purpose were met. However, Olivia lied that her age was 42 on the insurance application, and is receiving a premium commensurate with that age. Olivia died two years later in an automobile accident. Her certified death certificate indicated that she was 54 at the time of her death, and that she was 52 when she purchased the policy. Which of the following statement(s) is/are correct regarding this scenario?

Her beneficiary will receive a reduced death benefit to reflect her actual age.

Joe, age 33, is married and has a newborn son. Joe is concerned about providing for his family in the event of his premature death. He is concerned about the long-term affordability of life insurance but is able to budget a fixed amount for a period of time. Which of the following policies would you recommend?

Level-premium term.

Which of the following method(s) is/are appropriate to evaluate a person's life insurance needs? 1. The human life approach to evaluate life insurance needs takes into consideration the income replacement needs of a person's survivors including income during the readjustment period, income to widow(er), and educational funds for dependents. 2. The needs approach evaluates the estimated present value of income generated over a person's work-life expectancy that is needed and then adjusts for the expected consumption of the person and for taxes

None of the above.

Ryan and Jody are age 68 and 72, respectively, and are married. They have significant assets that will be subject to estate taxes upon the second spouse's death. Which of the following life insurance policies would you recommend?

Second-to-die whole life policy.

Which of the following life insurance policies provides the highest benefit for the lowest premium and is simply a pure death benefit policy?

Term

Terry has been advised by his insurance agent to purchase a variable universal life insurance policy. He has sought your advice regarding this purchase. All of the following are characteristics of a variable universal policy, except:

The death benefit is guaranteed to be equal to the face value.

The blackout period is:

The period of time when the dependents have reached age 18 and the spouse's Social Security retirement benefits have not started.

Which of the following life insurance policies has a fixed premium, a cash value and a death benefit that can fluctuate based on investment performance?

Variable whole life

Which one of the following statements concerning whole life insurance is false?

Whole life insurance can be participating, which means the insured must participate in self-directed investments for the cash value.

Which of the following life insurance policies contains a cash-value savings component that reaches the face value of the policy at age 100 -120?

Whole life.