Chapter 10 Personal Finance
b
62. Frank, age 38, was hit by a car and died. Which of the following riders provided an additional benefit for his heirs? A. Waiver of premium disability benefit B. Accidental death benefit C. Guaranteed insurability option D. Cost-of-living protection E. Accelerated benefits
d
63. A young employee is buying individual life insurance and is worried about the impact inflation will have on his life insurance coverage. Which of the following riders should he consider? A. Waiver of premium disability benefit B. Accidental death benefit C. Guaranteed insurability option D. Cost-of-living protection E. Accelerated benefits
b
24. A person who is named to receive the benefits from an insurance policy is a(n) A. Contract. B. Beneficiary. C. Policyholder. D. Insurer. E. Child.
e
30. Francisco and Maria have three children and want to complete a detailed worksheet to determine the amount of life insurance they need to purchase. Which method are they using to determine their life insurance needs? A. Easy method B. Dual income, no kids method C. Formal calculation method D. Nonworking spouse method E. Family need method
b
34. Jeanne wants to purchase a life insurance policy with guaranteed premiums. What kind of policy would she want to purchase? A. Dividend policy B. Nonparticipating policy C. Mutual policy D. Participating policy E. Stock policy
d
35. Another name for temporary life insurance is A. Whole life. B. Straight life. C. Ordinary life. D. Term. E. Cash value life.
e
40. Which of the following is NOT a type of permanent life insurance? A. Whole life B. Variable life C. Universal life D. Adjustable life E. Decreasing term life
b
44. This term life policy will guarantee that you will pay the same premium for the duration of your policy. A. Renewable term B. Multiyear level term C. Decreasing term D. Limited payment E. Single year term
a
57. Fred bought life insurance five years ago. He forgot to tell them that he had a heart condition, and, as a result of that condition, he recently died. Which of the following provisions prevents the life insurance company from refusing to pay his beneficiaries because of his original misrepresentation? A. Incontestability clause B. Misstatement of age provision C. Naming a beneficiary D. Policy reinstatement E. The grace period
a
59. Amy bought a life insurance policy and named Ben as her beneficiary. She has since died. Who will receive the benefits from her policy? A. Ben. B. Ben's beneficiaries. C. Her contingent beneficiaries. D. Her parents. E. None of these.
a
76. Which of the following allows an individual to receive a fixed amount of income over a certain period of time, or over his or her life? A. Fixed annuity B. Term insurance C. Whole insurance D. Variable annuity E. 401(k)
c
79. Annuities are often purchased for A. 401(k) plans. B. Certificates of deposit. C. Individual retirement accounts (IRAs). D. Term life insurance plans. E. Whole life insurance plans.
c
86. Marianne and Roger are in good health and have reasonably secure careers. Each earns $45,000 annually. They own a home with a $125,000 mortgage; they owe $25,000 for their car loans and have $22,000 in student loans. If one should die, they think that funeral expenses would be $12,000. What is their total insurance need using the DINK method? A. $12,000 B. $86,000 C. $98,000 D. $172,000 E. $217,000
b
25. Most people buy life insurance to A. Pay off a mortgage. B. Protect the people who depend on the insured from financial losses caused by his or her death. C. Pay for a vacation. D. Spend money. E. Pay taxes.
d
26. Which of the following households most likely has the greatest need for life insurance? A. Single adult living alone. B. Adult child living with parents. C. Retired couple with a pension. D. Household with children. E. Independently wealthy adult.
a
27. Judy and James have a 4-year-old child. They plan to purchase life insurance using this formula: Current income × 7 × 70%. Which method are they using to determine their life insurance needs? A. Easy method B. Dual income, no kids method C. Formal calculation method D. Nonworking spouse method E. Family needs method
b
39. If you want to purchase term insurance, you will receive all of the following except A. Protection against loss of life for a specified term. B. Cash value. C. Temporary insurance. D. A benefit during the period it covers, such as 1, 5, 10, or 20 years. E. A policy whose coverage stops after a period of time.
a
38. Which of the following is NOT temporary insurance? A. Whole life B. Renewable term C. Convertible term D. Decreasing term E. Multiyear level
e
81. Which of the following is a charge you will pay when you purchase a variable annuity? A. Surrender charge. B. Mortality and expense risk charge. C. Administrative fee. D. Fund expense. E. All of these.
b
41. If you have a renewable term policy, A. You may not purchase insurance once your term ends. B. Your premium may increase if you continue it for another term because you will be older. C. Your premium will not increase because your policy is renewable. D. You can convert your policy to a permanent type at the end of the term. E. None of these is correct.
c
42. If you have a multiyear level term policy, A. You can convert your policy to a permanent type at the end of the term. B. You policy will continue for one year. C. Your premium will be the same for the duration of your policy. D. Your premium will not increase when you renew it. E. None of these is correct.
b
45. Another name for a straight term policy is A. Renewable term. B. Multiyear level term. C. Decreasing term. D. Limited payment. E. Single year term.
b
84. Tim and Tammy are updating their financial plan and are concerned that they might not have enough life insurance coverage for their family, which includes two children, ages 4 and 10. They have determined that their annual income is $70,000 and their net worth is now $150,000. What is the amount of life insurance they should carry using the easy method? A. $140,000 B. $343,000 C. $490,000 D. $700,000 E. $750,000
a
85. Tim and Tammy are updating their financial plan and are concerned that they might not have enough life insurance coverage for their family, which includes two children, ages 4 and 10. They have determined that their annual income is $70,000 and their net worth is now $150,000. What is the amount of life insurance they should carry using the "nonworking" spouse method? A. $140,000 B. $343,000 C. $490,000 D. $700,000 E. $750,000
d
75. Which of the following statements is incorrect? A. A deferred annuity allows an individual to receive payments from an annuity at some future date. B. An immediate annuity allows an individual to receive payments from an annuity beginning at once. C. A life insurance policy allows the beneficiary to receive proceeds at some future date. D. An annuity is more advisable for people in poor health than for those who are likely to live longer than average. E. An insurance company will calculate the annual amounts to pay each person for an annuity.
d
77. Which of the following allows an individual to receive an amount of income that will change based on the income received from stocks or other investments over a certain period of time, or over his or her life? A. Fixed annuity B. Term insurance C. Whole life insurance D. Variable annuity E. 401(k)
e
78. Which of the following statements is correct? A. It is better to fund a fixed annuity before fully funding your IRA, Keogh, or 401(k). B. The timing for payments of a variable annuity are variable. C. It is better to fund a variable annuity before fully funding your IRA, Keogh, or 401(k). D. A fixed annuity is one where the investments made into the annuity are variable. E. It is better to fund an IRA, Keogh, or 401(k) before buying an annuity.
e
31. About ___ of the U.S. life insurance companies are stock companies. A. 5% B. 25% C. 50% D. 75% E. 95%
d
28. Jeff and Erica have two children. They plan to purchase life insurance using this formula: (18 - Youngest child's age) × $10,000. Which method are they using to determine their life insurance needs? A. Easy method B. Dual income, no kids method C. Formal calculation method D. Nonworking spouse method E. Family needs method
b
29. Donald and Charlene are married and do not have any children. Each plans to continue to work after the other one dies. Which method are they using to determine their life insurance needs? A. Easy method B. Dual income, no kids method C. Formal calculation method D. Nonworking spouse method E. Family needs method
d
32. You want to purchase a life insurance policy that pays a dividend. What kind of policy would you want to purchase? A. Dividend policy B. Nonparticipating policy C. Mutual policy D. Participating policy E. Stock policy
b
33. Todd plans to purchase a life insurance policy from a stock life insurance company. What kind of policy is he planning to purchase? A. Dividend policy B. Nonparticipating policy C. Mutual policy D. Participating policy E. Stock policy
d
36. Which of the following is NOT a type of permanent insurance? A. Whole life B. Straight life C. Ordinary life D. Term life E. Cash value life
a
37. Another name for permanent life insurance is A. Whole life. B. Renewable term. C. Convertible term. D. Decreasing term. E. Credit life.
c
43. If you have a conversion term policy, A. Your premium will not increase when you renew it. B. You can convert your policy from permanent to term at any time. C. You can convert your term policy to a permanent policy. D. Your policy will have the same premium as other term policies. E. Your premium will be higher than a whole life policy premium.
c
46. Which of the following is NOT a feature of whole life insurance? A. It accumulates cash value. B. It provides both a death benefit and a savings component. C. The policy will return all premiums if you survive to the end of the policy. D. You must pay interest on any outstanding policy loans. E. The policy requires that you pay a specified premium each year for the rest of your life.
d
47. Of the following, which one is the most positive feature of whole life insurance? A. You must pay interest on any loans. B. You pay premiums each year for the rest of your life. C. It is more expensive than term insurance. D. It builds cash value. E. It is permanent life insurance.
e
48. Megan wants to purchase a life insurance policy that will allow her to invest in stock. Which of the following policies should she buy? A. Adjustable life B. Group life C. Limited life D. Universal life E. Variable life
a
49. Molly is thinking about buying a life insurance policy, but she is not sure about how much she will need in the next few years. She may need to change her coverage as her needs change. Which of the following policies would meet her needs? A. Adjustable life B. Group life C. Limited life D. Universal life E. Variable life
d
50. Polly wants the opportunity to change the amount she pays for her annual premium through the life of her insurance policy without changing her coverage. Which of the following policies would meet her needs? A. Adjustable life B. Group life C. Limited life D. Universal life E. Variable life
b
51. Pam just started working at XYZ Widget Company and finally wants to get insurance coverage. She does not want to take a medical exam to get coverage because she has some underlying health conditions and is concerned that she might not qualify for a policy. Which of the following life insurance policies should she apply for? A. Adjustable life B. Group life C. Limited life D. Universal life E. Variable life
c
52. Which of the following is a poor choice for the amount of protection offered for an individual? A. Group life B. Term C. Credit life D. Endowment life E. Adjustable life
c
53. Wendy has had a life insurance policy for five years. She was recently divorced. Which of the following provisions should she take action on? A. Incontestability clause B. Misstatement of age provision C. Naming a beneficiary D. Policy reinstatement E. The grace period
b
55. Fred bought life insurance when he was 47, although he told the insurance company that he was 42. He has since died. Which of the following provisions will affect the amount of money his beneficiaries will receive? A. Incontestability clause B. Misstatement of age provision C. Naming a beneficiary D. Policy reinstatement E. The grace period
e
56. Georgia was supposed to pay her premium by the 15th of the month. Which of the following provisions allows her to keep her coverage if she is a couple of weeks late with paying her premium? A. Incontestability clause B. Misstatement of age provision C. Naming a beneficiary D. Policy reinstatement E. The grace period
c
58. The policy loan provision means that A. An individual can take out a loan on his or her term policy. B. The death benefit will be increased by the amount of an outstanding policy loan. C. The policy owner can borrow any amount up to the cash value of the policy. D. The beneficiary can borrow any amount up to the total benefit. E. No interest will accumulate for any loans related to life insurance.
c
60. Bonnie is most concerned about being able to buy additional insurance without undergoing medical exams. Which of the following riders should she consider? A. Waiver of premium disability benefit B. Accidental death benefit C. Guaranteed insurability option D. Cost-of-living protection E. Accelerated benefits
a
61. Bill is worried about being able to pay his premium if he is totally and permanently disabled before age 60. Which of the following riders should he consider? A. Waiver of premium disability benefit B. Accidental death benefit C. Guaranteed insurability option D. Cost-of-living protection E. Accelerated benefits
e
64. Mildred was diagnosed with terminal cancer and knows that she doesn't have long to live. Which of the following riders would allow her to receive cash now? A. Waiver of premium disability benefit B. Accidental death benefit C. Guaranteed insurability option D. Cost-of-living protection E. Accelerated benefits
d
65. What is the most important part of an insurance agent's job? A. Sell you the highest level of coverage available. B. Collect premiums for the insurance contract. C. Tell you why her product is better than the competitor's. D. Help you select the proper kind of protection within your financial boundaries. E. Convince you to buy the policy that will pay her the highest commission.
c
66. Which of the following is NOT important when buying life insurance? A. Buying from a financially strong company B. Buying from professionally qualified representatives C. Ignoring the reputations of local agencies D. Working with a representative who will help you select the proper kind of protection within your financial boundaries E. Asking family or friends for recommendations to choose an insurance company
e
67. Which of the following is NOT a factor that affects the price a company charges for a life insurance policy? A. The company's cost of doing business. B. The return on its investments. C. The mortality rate it expects among its policy holders. D. The policy features. E. All of these affect the price.
b
68. All of the following are major rating agencies for insurance except A. A.M. Best. B. Dun & Bradstreet. C. Moody's. D. Standard & Poor's. E. Weiss Research.
c
69. After you purchase a life insurance contract, you have a "free look" period that lasts A. 3 days. B. 5 days. C. 10 days. D. 30 days. E. 60 days.
b
70. The settlement option that pays the life insurance proceeds in equal periodic payments for a specified number of years after your death is called A. Lump-sum payment. B. Limited installment payment. C. Final life payment. D. Life income option. E. Proceeds left with the company.
d
71. The settlement option that pays the life insurance proceeds to the beneficiary for as long as she or he lives is called A. Lump-sum payment. B. Limited installment payment. C. Final life payment. D. Life income option. E. Proceeds left with the company.
e
72. The settlement option in which the company acts as trustee and pays interest to the beneficiary is called A. Lump-sum payment. B. Limited installment payment. C. Final life payment. D. Life income option. E. Proceeds left with the company.
d
73. Which of the following products allows an individual to receive payments beginning now? A. Term insurance B. Deferred annuity C. Whole life insurance D. Immediate annuity E. Universal life insurance
e
74. Which of the following statements is correct? A. A deferred annuity allows an individual to receive payments from an annuity immediately. B. A deferred annuity allows an individual to receive payments from a life insurance policy immediately. C. A life insurance policy allows an individual to receive payments from an annuity at once. D. A deferred annuity allows an individual to receive payments from a life insurance policy at some future date. E. An immediate annuity allows an individual to receive payments from an annuity beginning at once.
a
80. The Tax Reform Act of 1986 A. Preserved the tax advantage of annuities but curtailed deductions for IRAs. B. Allowed whole life insurance policies to be sold. C. Identified annuities to be the same as certificates of deposit. D. Allowed annuities to be purchased for individual retirement accounts. E. Made all annuities tax free.
b
82. Stephanie is the wage earner in a "typical family" with $40,000 gross annual income. Use the easy method to determine how much insurance she should carry. A. $40,000 B. $196,000 C. $280,000 D. $400,000 E. $430,000
d
83. Holly and Matt want to use the "nonworking" spouse method to determine the amount of life insurance coverage they need. If their youngest child is 5 years old, how much do they need? A. $13,000 B. $18,000 C. $50,000 D. $130,000 E. $180,000
