Basics of Life Insurance
Which of the following would most likely NOT be a reason to purchase a life insurance policy for the purpose of accumulating cash?
Going on a shopping spree
All of the following are personal uses of life insurance EXCEPT
auto protection
All of the following are examples of liquid assets EXCEPT
real estate
An example of an illiquid asset is
real estate
A mortality table reflects
the average number of deaths that will occur during a given year for a given age group of individuals
An insurers' operating costs are known as
the expense load
Regular notices sent to policyowners for payment of their life insurance policy premiums reflect
the gross premium
The loaded premium is
the gross premium
Upon the issuance of a life insurance policy, an insurable interest must exist between
the insured's annual income
With regard to a breadwinner's death, the blackout period generally can be defined as
the period that begins when the youngest child is 16 and ends when the surviving parent turns 60
According to the principle of human life value, the purpose of life insurance is
to replace an individual's economic value
The net premium is defined as
mortality minus interest
Selena is a single parent paying for her home. She is concerned about where her children will live if she suddenly dies. Her primary reason for purchasing life insurance is
mortgage payoff
The annual gross premium of a life insurance policy is defined as
net premium plus expense
A life insurance gross premium is
net single premium plus expense
All of the following are basic factors used to compute life insurance premiums EXCEPT
a morbidity factor that covers the risk of becoming disabled and triggering the waiver of premium provision
Another name for an entity plan is
a stock redemption plan
an executive bonus plan is an employee benefit arrangement in which
an employer pays the premiums on a permanent life insurance policy that is owned by the employee
With a life insurance contract, an insurable interest must exist
at the inception of the contract
Vanita and Tarun have an estate worth $10 million, most of which is invested in their family business. In order to pay the federal estate tax that will be due at the death of the survivor, their reason for purchasing life insurance would be for
estate conservation
The phrase "the applicant for insurance has more to gain if the insured continues to live than if the insured dies" is the
insurable interest
In the life insurance business, a word that is synonymous with expenses is
loading
All of the following are premium elements EXCEPT
morality
What factor in life insurance is comparable to the morbidity factor in health insurance?
mortality
Who would NOT have an insurable interest for a life insurance policy?
The closest friend of the insured
All of the following are basic premium factors EXCEPT
The insured's annual income
All of the following factors are usually considered cash needs when determining the life insurance needs of a family EXCEPT
funds to support spousal retirement
A corporation has key-person life insurance on its president. If the president dies, which of the following statements would be CORRECT?
. The company may use the death benefit proceeds to search for and retain a new president.
An insurable interest may be found in which of the following?
An employer in the life of a key employee
Of the following payment modes, which is generally the least expensive?
Annual
Which of the following statements about executive bonus plans is NOT correct?
At the employee's death, the company receives the death proceeds free of tax.
When a cross-purchase plan is funded by life insurance,
Each partner owns a policy on the lives of each of the other partners
Jordan wants to set aside money so that his grandchildren's college tuition will be paid. While he is only 58, he is concerned that if he dies too young, he will not have had enough years to accumulate assets. What is Jordan's reason for purchasing life insurance?
Estate creation
Which of the following is a liquid asset?
Life insurance proceeds
Which of the following premium factors has the greatest effect on life insurance premium calculations?
Mortality
What tool do life insurance actuaries use to help establish premium rates based on the probabilities of death at various ages?
Mortality table
Alaina, age 39, is married and has a small son. She is employed as a sales manager by R.J. Links, a sole proprietorship that owes much of its success to Alaina's efforts. She recently borrowed $50,000 from her brother-in-law, Pete, to finance a vacation home. Which of the following individuals does NOT have an insurable interest in Alaina's life?
One of her customers
Ben is considering the purchase of a $75,000 whole life policy. Which of the following options would tend to lower his premiums?
Paying premiums annually as opposed to monthly
Which of the following uses life insurance death benefits to provide financial support for dependents when the primary wage earner dies?
Survivor protection
Which of the following statements about the differences between individual and group life insurance is CORRECT?
The cost of group life insurance is generally lower than individual insurance.
Which of the following statements regarding a deferred compensation plan is CORRECT?
The employee agrees to forgo part of his current income until a specified future date, typically retirement, and may use life insurance as the funding vehicle for the plan.
Which of the following statements pertaining to executive bonus plans is CORRECT?
The employee has access to the policy's living benefits.
Which of the following statements regarding deferred compensation plans is NOT correct?
The employee may convert the funds to another plan if he leaves the company.
The key person designates the beneficiary. Which of the following statements regarding executive bonus plans is NOT correct?
The employer becomes the policyowner of the insurance policy.
Which of the following statements pertaining to life insurance premiums is NOT correct?
The interest factor is a premium charge based on assumed lost earnings after claims
Which of the following statements pertaining to key-person life insurance is CORRECT?
The policy is a company-owned asset.
Which of the following has the greatest impact in making one individual's life insurance premium different from that of another individual, assuming both own the same type of policy?
The policy's mortality factor
Which of the following situations constitutes an insurable interest?
The policyowner must expect to suffer a loss when the insured dies or becomes disabled.
Which of the following is NOT taken into account when using the needs approach to determine the proper amount of insurance protection?
The projected future earnings of the breadwinner and the number of years she expects to work
With individual life insurance, all of the following would factor into the premium rate EXCEPT
the insurer's reserves
Which of the following statements regarding buy-sell agreements is NOT correct?
Buy-sell agreements are only funded with annuities.
Which of the following statements regarding life insurance is NOT correct?
Insurable interest must be maintained throughout the life of the contract..
Which of the following would be a source of instant liquidity upon the death of an estate owner?
a life insurance policy on the estate owner's life, payable to the estate
An individual may purchase a life insurance policy on all of the following persons EXCEPT
a neighbor
A deferred compensation plan is
a nonqualified plan funded by the employer
Which of the following statements regarding the mortality rate is NOT correct?
It is used in the determination of health insurance rates.
Which of the following statements pertaining to sole proprietor buy-sell plans is CORRECT?
Life insurance is an ideal medium for funding a buy-sell agreement because, for a reasonable premium, it makes money available when needed to activate the sale of the business.
. Herb and Felicia have been married for several years and are interested in increasing their life insurance protection as their family grows. Herb is a lawyer with a midsized firm. Felicia is a freelance writer of children's books. In planning for the future, when might they expect that their family will have its greatest need for income should one of them die?
While the children are in elementary school
After a family's breadwinner dies, the blackout period generally can be defined as the period
that begins when the youngest child turns 16 and ends when the surviving parent reaches age 60
The needs approach can be used to determine all of the following EXCEPT
the amount needed to replace the breadwinner's projected increasing annual Salary
Which of the following statements regarding key-person coverage is NOT correct?
. The business is the beneficiary.
Cybil is insured under a key-person life insurance policy owned by Delta Corporation and then quits her job. Which of the following statements is NOT correct?
Cybil can convert the policy to an individual policy.
Which of the following terms refers to the period following the death of a breadwinner during which the children are living at home?
Dependency period
Which of the following statements regarding nonqualified deferred compensation plans is NOT correct?
Under a nonqualified deferred compensation plan, an employee can rely on guaranteed future benefits.
Insurable interest must exist between the policyowner and the insured
at the time the contract is entered into
When using the needs approach to determine the amount of life insurance required, all of the following are income needs EXCEPT
emergency fund needs
Which of the following is NOT a business use of life insurance?
estate conservation
