Chapter 8

Jonathan estimates that financial resources worth $2,000,000 will be necessary to protect his family after his death. What is the amount of insurance, as per the needs analysis method, that Jonathan should purchase if he has current financial resources worth $1,000,000?

$1,000,000

It is advisable to purchase life insurance from an insurance company that has been in business for at least _____ years.

25

_____ and _____ are both relatively expensive types of decreasing term life insurance.

Credit life; mortgage life

Which of the following leads to the payment of a higher insurance premium by the potential insured?

Obesity of the potential insured

Which of the following is true of a good insurance agent?

The agent is recommended by professionals like bankers and attorneys.

Which of the following is true of the multiple-of-earnings method?

The multiple-of-earnings method determines the amount of life insurance coverage needed by multiplying the gross annual earnings of the insured by some selected number.

Group life insurance is most likely to be for ___________.

a term

Group life insurance is:

an insurance that provides a master policy for a group.

Henry must make set premium payments on his insurance policy until he dies, and if he cancels the policy, he will receive the cash value. His plan is a _____ policy.

continuous whole life

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

economic

If an insured has a high-risk hobby, then he or she should expect to pay less for life insurance.

false

Insurance agents always disclose their commissions in an insurance policy.

false

The primary purpose of life insurance is to provide:

financial security for dependents in the event of death.

_____ can be both an advantage and a disadvantage of universal life insurance.

flexible premiums

___________ insurance is a type of insurance that is issued in policies with small face amounts, often $1,000 or less.

industrial life

In order to predict the number of losses that will occur in a given time accurately, insurance companies must study a ___________ numbers of cases.

large

The settlement option chosen by most policyholders is:

lump sum

The _____ method is the most accurate method of determining the amount of life insurance coverage needed for an individual.

needs analysis

The insurance portion of a universal life policy is most analogous to:

term insurance

Which of the following types of insurance policies provides temporary coverage for a set period?

term life insurance policy

A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary, which means that _____.

the cash benefits from your life insurance policy cannot be claimed by creditors

Insurance companies use actuarial data to measure:

the risk of loss for a given population.

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

It can be difficult to evaluate the true cost of a _____ at the time of purchase.

universal life insurance

The policy owner assumes the investment risk with a ___________ insurance policy.

vaiable life

The most preferred technique for determining how much life insurance coverage is needed for an individual is:

assessing the family's total economic needs and subtracting the financial resources available to meet those needs.

Families faced with the loss of a principal wage earner receive Social Security benefits _____.

from the government that are intended to provide basic, minimum support

You want to pay premiums for 20 years and have your insurance premium obligations finished at that time. However, you feel you will need life insurance for the rest of your life. You should choose a _____ insurance.

limited payment whole life

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

risk transfer

While performing needs analysis, when determining the available resources to offset the economic needs, you would generally ignore:

the educational qualification of the children.

A grace period permits a policyholder to retain full death protection even though the premium has not been paid for:

31 days

Which of the following policy features allows the insured to increase coverage periodically without showing proof of insurability?

Guaranteed purchase option

You can learn about the financial strength of an insurance company by checking ___________ rating system.

Standard & Poor's

Universal life insurance is:

a combined investment plan and insurance policy.

A life insurance agent who takes her profession seriously is likely to have earned a professional certification like the ___________.

chartered life underwriter

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

Employers often provide _____ life insurance as a fringe benefit for their employees.

group

A life insurance policy with a small face amount where the premium may be collected weekly by agents is termed _____.

industrial life insurance

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

___________ is an activity that reduces the chance that a loss will occur.

loss prevention

A life insurance policy can be structured so that death benefits are paid directly to a(n) ___________, which means that creditors cannot claim the cash benefits from the life insurance policy.

named beneficiary

The most accurate way to determine how much life insurance you need is to use the ___________ method.

needs analysis

Term life insurance is characterized by _____.

premium amounts related to age of the insureds

A(n) _____ is a common provision in many term policies.

renewable clause

___________ is the choice to accept and bear the risk of loss.

risk assumption

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

risk avoidance

_____ determines the amount of life insurance coverage required for an individual by considering his or her financial obligations and available financial resources in addition to life insurance.

the needs analysis method

The availability of group coverage through employee benefit programs should be considered when developing a life insurance program.

true

Underwriters use life expectancy figures to look at overall longevity for various age groups and also consider specific factors related to an applicant's health, habits, and experiences.

true

The death benefit of a(n) _____ life insurance policy may go down because of poor investment returns.

variable

Sales commissions and marketing expenses can increase the costs of a fully loaded _____ policy.

whole life insurance

Marilyn Simms died with a $200,000 life insurance policy. Her husband, Jack, is the primary beneficiary, and their children, Mimi (age 24) and Ann (age 30), are the contingent beneficiaries. All three survive Marilyn. How will the policy proceeds be distributed?

$200,000 to Jack