Personal Finance ch. 10

If you opt for a term insurance policy, as your children become independent and your _____ increase, you can reduce your _____.

1. assets or property or properties 2. coverage

The easy method is based on the assumption that it will take _____ years to adjust to financial consequences of death.

7

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 its beneficiaries because of its original fraudulent misrepresentation? A. Incontestability clause B. Misstatement of age provision C. Naming a beneficiary D. Policy reinstatement E. The grace period

A. Incontestability clause

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. Considered 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.

A. Preserved the tax advantage of annuities but curtailed deductions for IRAs.

For most consumers, term life insurance is considered to be the: A. best value B. same cost as term C. worst option D. most expensive

A. best value

Which of the following is NOT a charge you pay when buying a variable annuity? A. Front-end load B. Mortality and expense risk charge C. Administrative fees D. Surrender charges

A. front-end load

Which household has the highest need for life insurance? A. Households with small children B. Households with grown adult children C. Household with no children D. Households with older children

A. households with small children

The main reason to purchase an annuity is to give you ______ income for the rest of your life. A. retirement B. expected C. untaxed D. average

A. retirement

Life expectancy in the United States has been: A. steadily increasing B. steadily decreasing C. equal to the worlds rate D. remaining the same

A. steadily increasing

A whole life policy that combines term insurance and investment elements is called: A. universal life B. global life C. combo life D. investment life

A. universal

When you buy life insurance, you agree to pay a monthly premium to an insurance company, in return for a sum of money paid to: A. your beneficiary. B. your choice. C. you. D. your home mortgage company.

A. your beneficiary

Donald and Charlene are married and do not have any children. They plan to ensure that the other will not be unduly burdened by debts in case one of them dies. Each plan 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

B. Dual income, no kids method

Which of the following is NOT true? A. Administrative fees may be a flat fee or a percentage of the account value B. Surrender charges on an annuity usually run for 25 years C. Mortality and expense charges are usually about 1.25% on annuities D. Surrender charges usually decline gradually over a period of 7 to 10 years

B. Surrender charges on an annuity usually run for 25 years

Which method uses an equation of 70 percent of your salary for seven years? A. Seven-year method B. Easy method C. G.S.A 7 method D. DINK method

B. easy method

Life insurance proceeds can be used wisely to: A. establish a name for yourself B. provide education or income for children C. purchase new large gifts D. pay off home mortgage or debts E. establish regular income for survivors

B. provide education or income for children D. pay off home mortgage or debts E. establish regular income for survivors

This life insurance is used to pay off certain debts, such as auto loans, in the event that you die before the debts are paid in full. Which of the following is typically not the best buy for the amount of protection offered? A. Group life B. Term C. Credit life D. Endowment life E. Adjustable life

C. Credit life

A contract that provides a regular income for as long as a person lives is called a(n): A. regular income policy B. until death policy (UDP) C. annuity D. lifelong payment

C. annuity

Life insurance that does not provide policy dividends is also called a nonpar, or ______ policy. A. participating B. government C. nonparticipating D. social security

C. nonparticipating

What characteristics should you consider in an insurance company? A. Popularity among your friends B. Name recognition C. Professionally qualified representatives D. Political views E. Financial stability

C. professionally qualified representatives E. financial stability

A plan where the policyholder pays the same premium for as long as they live is called a(n): A. premium annuity B. annual benefit plan C. whole life policy D. c.p.c (constant premium coverage)

C. whole life policy

Of the 841 life insurance companies in the United States, about ___ are stock companies. A. 5% B. 25% C. 50% D. 75% E. 95%

D. 75%

The most important part of an insurance agent's job is to: 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 competitors. 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.

D. Help you select the proper kind of protection within your financial boundaries.

Of the following, which one is the most positive feature of whole life insurance for a person who wants a more structured way to save? 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.

D. It builds cash value

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.

D. Life income option

Jeff and Erica have two children. They plan to purchase life insurance using this formula: (18 minus Youngest child's age) × $20,000. 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 need method

D. Nonworking spouse method

Which of the following provisions requires the policyholder to again qualify as an acceptable risk and pay overdue premiums with interest in order to put a lapsed policy back in force? A. Incontestability clause B. Misstatement of age provision C. Naming a beneficiary D. Policy reinstatement E. The grace period

D. Policy reinstatement

The amount received after giving up a whole life type of insurance policy is called the: A. return value B. give up value C. payback value D. cash value

D. cash value

A provision stating that the insurer cannot cancel a policy after a specific period, often two years, is called a(n) A. nondispute clause B. beneficiary C. nonforfeiture clause D. incontestability clause

D. incontestability clause

_____ (Higher/Lower) premiums are charged on life insurance policies for those likely to die sooner.

Higher

When and if you cancel a whole life insurance policy, you are entitled to the accumulated savings, which is known as the _____ _____

cash value

An incontestability clause states that the insurer cannot _____ the policy if it is in force for a specified period.

drop or cancel or invalidate or terminate or revoke or forfeit

A term life insurance policy is one in which policyholders pay the same premium each year as long as they live. True False

false

The sooner a person is likely to die, the lower the premiums she will have to pay. True False

false

One of the main factors when determining which companies to buy policies from is whether or not the company is _____ stable.

financially

_____ income earned on annuities is tax free during accumulation.

interest

People that live alone or with parents typically do not need _____ insurance.

life

_____ (Participating/Nonparticipating) policies do not provide policy dividends.

nonparticipating

Term life insurance provides protection for a specific _____ of time.

period

Life insurance is when a person joins a risk-sharing group known as an insurance company and purchases a contract also called an insurance ____

policy

Term life insurance is also known as _____ life insurance.

pure or temporary

Life insurance is one of a few ways to provide income and liquidity at the time of death. True False

true

_____ life insurance is essentially a term policy with a cash value.

universal