Life Insurance Basics

What is business life insurance used for? Select one: a. An employee benefit b. A funding tool c. Business interruption insurance d. All of the above

d. All of the above

An applicant for life insurance has insurable interest in all of the following, EXCEPT: Select one: a. Own life b. Spouse c. Business partner d. Cousin

d. Cousin

The ___________ approach calculates the amount of money a person is expected to earn over their lifetime to determine the face amount of life insurance needed, thereby placing a dollar value on the life of an individual. Select one: a. Human life value b. Needs c. Salary d. Social Security blackout

a. Human life value

Insurance agent Sam is helping Joyce determine the proper amount of life insurance for her needs. Sam uses Joyce's age, net annual salary, number of working years remaining prior to retirement, expenses and the rate at which the value of the dollar is depreciating. Which of the following methods is Sam using? Select one: a. Needs approach b. Human life value approach c. Estate conservation approach d. Lump-sum approach

b. Human life value approach

All of the following are true regarding viatical settlements, EXCEPT: Select one: a. A terminally or chronically ill insured can sell their life insurance policy to a third party in exchange for payment of a large portion of the death benefit. b. Viatical settlements are a type of life insurance contract. c. In a viatical settlement, the third party that purchases the insured's life insurance policy is termed the viatical settlement provider, and the insured is termed the viator. d. The portion of the death benefit the viator receives in a viatical settlement ranges from 50 to 80 percent of the death benefit.

b. Viatical settlements are a type of life insurance contract.

Mary's Cosmetics purchases a life insurance policy on Samantha, the leading makeup salesperson in the nation. Which business continuation plan did Mary's Cosmetics buy? Select one: a. Split-dollar b. Executive bonus plan c. Key person insurance d. Section 303 plan

c. Key person insurance

What is the period when children are no longer dependent on their parents for financial support? Select one: a. Family dependency period b. Social Security blackout period c. Preretirement period d. Retirement period

c. Preretirement period

All of the following statements regarding key person insurance are true, EXCEPT: Select one: a. A business that purchases life insurance on a key employee has purchased key person insurance. b. Key person insurance is intended to offset the loss to a business when a top-selling salesperson, manager or employee dies. c. The key employee is the policyowner and pays the premiums; the company is the beneficiary. d. Premiums are not tax-deductible, but the death benefit is received tax-free.

c. The key employee is the policyowner and pays the premiums; the company is the beneficiary.

Which of the following statements is false regarding viatical settlements? Select one: a. The owner of the viator's life insurance policy is called the viatical settlement provider, who pays the premiums and will receive the full death benefit, not subject to income tax, when the viator dies. b. Viatical producers and brokers sell viatical settlements. c. Viatical brokers work for and represent viatical settlement providers, whereas viatical producers work for and represent insureds. d. Viatical settlement providers, producers and brokers all must be licensed with the state in which they transact business.

c. Viatical brokers work for and represent viatical settlement providers, whereas viatical producers work for and represent insureds.

Agent Sam is using the human life value approach to assess Mary's life insurance needs. How much life insurance should Sam advise Mary to purchase if her annual income is $75,000 and she intends to work for another 20 years? Select one: a. $75,000 b. $100,000 c. $1 million d. $1.5 million

d. $1.5 million

All of the following are categories of insurable interest in life insurance, EXCEPT: Select one: a. A person's own life b. The lives of relatives or spouses c. Business/financial relationships d. Friends and coworkers

d. Friends and coworkers

In the needs approach, all of the following information is used to establish how much insurance needs to be purchased, EXCEPT: Select one: a. Expenses b. Maintenance income c. Debts d. The amount of money the insured is expected to earn over their lifetime

d. The amount of money the insured is expected to earn over their lifetime

All of the following are true regarding purchase of personal life insurance for charity, EXCEPT: Select one: a. Coverage is taken out on the life of the person buying the policy. b. The charity is named as the beneficiary. c. The person buying the policy pays the premiums, which are usually tax-deductible. d. The person purchasing life insurance for charity must have insurable interest in the lives of the charity's members.

d. The person purchasing life insurance for charity must have insurable interest in the lives of the charity's members.

When must insurable interest be shown for a life insurance policy? Select one: a. When death benefits are paid b. When submitting the claim c. When the policy is delivered d. Upon policy application

d. Upon policy application

When does the Social Security blackout period begin? Select one: a. When the oldest child reaches age 18 b. When the youngest child reaches age 18 c. When the oldest child reaches age 16 d. When the youngest child reaches age 16

d. When the youngest child reaches age 16

Ben applies for a life insurance policy on himself. How much insurable interest does Ben have in his own life? Select one: a. Unlimited b. Up to $100,000 c. Up to $1 million d. Up to $100 million

a. Unlimited

The ____________ approach calculates the amount of money a family needs immediately upon the death of the insured to pay for their expenses and basic necessities. Select one: a. Human life value b. Needs c. Salary d. Social Security blackout

b. Needs

The time period during which children are young and financially dependent upon their parents is termed the: Select one: a. Blackout period b. Preretirement period c. Family dependency period d. Support period

c. Family dependency period

The third party that purchases a life insurance policy death benefit from a terminally ill insured is termed: Select one: a. Viator b. Viatical settlement c. Viatical settlement provider d. Insurance producer

c. Viatical settlement provider

Which of the following is not a personal use of life insurance? Select one: a. Life insurance purchased for charitable reasons b. Life insurance death benefit used to maintain an estate c. To provide the insured with immediate availability of funds d. To fund a business' buy-sell agreement

d. To fund a business' buy-sell agreement