8. Insuring Your Life
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1. Risk avoidance is attractive when the cost of avoidance is less than the cost of handling it some other way.
a. True
b. False
2. Risk avoidance involves asking an insurance company to take over the risk in exchange for a small payment.
a. True
b. False
3. Underwriters can predict whether or not you will suffer a loss this year.
a. True
b. False
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8. Insuring Your Life
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7. The need for life insurance increases with children.
a. True
b. False
8. Your need for additional life insurance can be determined by looking at the difference between your family’s available
financial resources after your death and your family’s total economic needs.
a. True
b. False
9. Social Security survivor’s benefits are intended to provide basic, minimum support to families faced with the loss of a
principal wage earner.
a. True
b. False
8. Insuring Your Life
8. Insuring Your Life
8. Insuring Your Life
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15. Only one agent should be consulted for discussing personal financial needs and insurance requirements while buying
life insurance.
a. True
b. False
16. The basic purpose of insurance is to:
a. protect the health of you and your family.
b. protect you and your family from economic losses.
c. supplement the income of you and your family.
d. shield you and your family from bad decisions.
e. protect you and your family from nonfinancial losses.
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17. Insurance is a tool that can reduce your _____ risk.
a. social
b. mental
c. economic
d. accident
e. exposure
18. The purchase of insurance is a common form of _____ by the insured.
a. loss prevention
b. risk transfer
c. risk assumption
d. risk avoidance
e. loss control
19. Insurance underwriting is best described as:
a. the process used by insurers to decide who can be insured and to determine applicable rates that will be charged
for premiums.
b. a set of activities used to identify the risk and rewards of investing an insured’s funds on marketable securities.
c. production-related activities performed primarily by agents on the field.
d. a process of developing taxing structures for insurance policies.
e. a function most often performed by an actuary.
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20. Which of the following statements regarding insurance underwriting is true?
a. Insurance underwriters perform any activity that reduces the chance that a loss will occur.
b. Insurance underwriters perform a process used to avoid an act that would create a risk.
c. Insurance underwriters help insurers determine the insurance needs of the potential insured.
d. Insurance underwriters lessen the severity of loss after it occurs.
e. Insurance underwriters design rate classification schedules so that people pay premiums that reflect their chance
of loss.
21. The probability of a loss occurring can be reduced by:
a. risk observance.
b. loss prevention.
c. risk assumption.
d. loss retention.
e. insurance.
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c. tax-advantaged investments for your family.
d. high-yield investments for you and your family.
e. liquidity to expand your business operations.
25. Insurance companies use actuarial data to measure the:
a. creditworthiness of a given population.
b. risk of loss for a given population.
c. wealth of a given population.
d. gross productivity of a given population.
e. age of a given population.
26. From the standpoint of a person buying insurance, the central purpose of insurance should be:
a. to transfer the risk of serious losses.
b. to collect for all accidental losses.
c. to profit from uncertain future events.
d. to contribute to charitable purposes.
e. to reduce the cost of taking small risks.
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27. Insurance companies make profit by:
a. charging consultation fees to the insured.
b. avoiding the risk of loss of the insured.
c. charging underwriting fees from insurance agents.
d. paying out less than the sum of the premiums and the earnings on them.
e. giving less than the amount mentioned in the policy to the insured.
28. 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.
a. underwriting
b. risk
c. insurance
d. debt
e. reimbursement
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DATE MODIFIED: 10/30/2018 3:01 PM
29. _____ involves abstaining from any activity that will affect an individual financially.
a. Risk avoidance
b. Loss prevention
c. Loss control
d. Risk assumption
e. Premium collection
30. Which of the following statements regarding risk avoidance is true?
a. Risk avoidance is any activity that helps evade an act that creates a risk.
b. Risk avoidance is any activity that increases the chance that a loss will occur.
c. Risk avoidance is any activity that lessens the severity of loss once it occurs.
d. Risk avoidance is an act that reduces the probability that a loss will occur.
e. Risk avoidance is an effective way to handle small exposures to loss when insurance is too expensive.
31. A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary, which
means that:
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e. the life insurance company makes additional payments to the family of the insured so that they continue to live
comfortably.
32. The preferred technique for determining how much life insurance coverage is needed for an individual is:
a. computing the human life value.
b. using the probability of death each year, prevailing interest rates, and assumed inflation rates to find the
discounted present value of a future income stream.
c. assessing the family’s total economic needs and subtracting the financial resources available to meet those needs.
d. estimating the sum of money which, when paid in installments, will produce the same income as the person would
have earned after deducting assumed amounts for taxes and personal maintenance expenses.
e. using the multiple-of-earnings method adjusted for occupation.
33. While using the needs analysis approach to determine how much life insurance to purchase, you should:
a. add available resources to your family’s total economic needs.
b. multiply your gross annual earnings by the size of your family.
c. purchase the equivalent of your current annual income.
d. divide your gross annual earnings by the size of your family.
e. deduct available resources from your family’s total economic needs.
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34. The _____ method is the most detailed method of determining the amount of life insurance coverage needed for an
individual.
a. human life value
b. multiple-of-earnings
c. risk assessment
d. economic identification
e. needs analysis
35. While performing needs analysis, when determining the available resources to offset the economic needs, you would
generally ignore:
a. Social Security survivor’s benefits.
b. the children’s educational qualifications.
c. the earning potential of the surviving spouse.
d. proceeds from assets that can be liquidated comfortably.
e. the employer-provided group life insurance.
8. Insuring Your Life
8. Insuring Your Life