Chapter 12 – Life Insurance
1. (p. 389) Most people buy life insurance to protect someone who depends on them from
financial losses caused by their death.
2. (p. 388) Most American families face substantial loss when one spouse dies unexpectedly.
3. (p. 388) Life insurance is one of the most important purchases you may ever make.
Chapter 12 – Life Insurance
4. (p. 388) Consumer awareness of life insurance has changed little over the years.
5. (p. 389) Life insurance proceeds may be used to provide an education or income for children.
6. (p. 389) Life insurance proceeds may provide a retirement income.
Chapter 12 – Life Insurance
7. (p. 389) Most insurance companies can determine how long a particular person will live.
8. (p. 392) Single persons living alone have little or no need for life insurance.
9. (p. 392) Households with small children most often have the greatest need for life insurance.
10. (p. 392) The first step in buying insurance is to determine whether you really need life
insurance.
Chapter 12 – Life Insurance
11. (p. 392) If your death would cause financial stress for your dependents, you should consider
purchasing life insurance.
12. (p. 392) Two-earner couples may have a moderate need for life insurance, especially if they
have a mortgage or other large debts.
13. (p. 393) How much insurance one should carry is an important question for anyone who
owns or intends to buy life insurance.
14. (p. 393) Although it is impossible to put a price on the life of an insured person, most adults
probably are covered by some life insurance.
Chapter 12 – Life Insurance
15. (p. 393) The easy method of determining life insurance is based on the rule of thumb that a
“typical family” will need about 70 percent of a wage-earner’s salary for seven years.
16. (p. 393) The DINK (Duel Income No Kids) method of determining life insurance needs
assumes that the spouse will continue to work after husband’s/wife’s death.
17. (p. 393) If you have no dependents and your wife earns as much as you do, you have very
simple insurance needs.
18. (p. 394) The “family need” method of determining life insurance need provides a thorough
estimation of life insurance needs.
Chapter 12 – Life Insurance
19. (p. 396) Nearly all mutual companies issue only nonparticipating policies.
20. (p. 396) A term insurance policy pays a benefit only if you die during the period that the
policy covers.
21. (p. 398) The premium for the whole life policy increases with your age.
22. (p. 400-401) Universal life, variable life, and adjustable life are types of term life insurance.
Chapter 12 – Life Insurance
23. (p. 395) You can purchase life insurance from two types of insurance companies.
24. (p. 395) Stock life insurance companies are owned by their policyholders.
25. (p. 395) Most life insurance companies are mutuals.
26. (p. 396) In a participating policy, a part of the premium is refunded to the policyholder
annually.
Chapter 12 – Life Insurance
27. (p. 396) The premium that is refunded to holders of a participating policy is called the policy
dividend.
28. (p. 396) Two basic types of life insurance are temporary and permanent insurance.
29. (p. 396) Permanent insurance can be limited payment, variable, adjustable, or universal life
insurance.
30. (p. 396) Group life and credit life insurance are generally permanent forms of insurance.
Chapter 12 – Life Insurance
31. (p. 396) Term insurance is protection for a specified period of time, usually 1, 5, 10, or 20
years.
32. (p. 396) Term insurance continues for the entire term even if you stop paying the premiums.
33. (p. 397) Term insurance is a basic, “no frills” form of life insurance and is the best value for
most customers.
34. (p. 397) Term life insurance premiums decrease as you get older.
Chapter 12 – Life Insurance
35. (p. 397) The coverage of term insurance ends at the conclusion of the term, but you can
continue it if you have a renewability option.
36. (p. 397) If you have convertible term insurance, you can exchange it for a whole life policy
without a medical examination and at a higher premium.
37. (p. 398) The premium for a whole life policy remains constant for as long as an insured
lives.
38. (p. 397) Decreasing term life insurance is no longer available.
Chapter 12 – Life Insurance
39. (p. 398) The most common type of permanent life insurance is the whole life policy.
40. (p. 398) The amount of your life insurance premium for each $1,000 of coverage depends
primarily on the age at which you purchase the insurance.
41. (p. 398) One important feature of a term life policy is its cash value.
42. (p. 400) Cash value policies may make sense for people who intend to keep the policies for
only a couple of years.
Chapter 12 – Life Insurance
43. (p. 400) Because the premium payment period for a limited payment policy is shorter than
that of a whole life policy, the annual premium is higher.
44. (p. 400) A special form of the limited payment plan is the single-premium policy. In this type
of contract, you make only one very large premium payment.
45. (p. 400) The cash values of a variable life insurance policy increase at a constant rate over
time.
46. (p. 401) When you purchase a variable life policy, the insurance company assumes the risk
of poor investment performance.
Chapter 12 – Life Insurance
47. (p. 401) Universal life is a whole life policy that combines term insurance and investment
elements.
48. (p. 402) Credit life insurance is used to repay a personal debt should the borrower die before
doing so.
49. (p. 402) Credit life insurance policies for auto loans and home mortgages are usually the best
buys for the protection they offer.
50. (p. 403) Industrial life insurance is the most popular form of insurance today.
Chapter 12 – Life Insurance
51. (p. 404) An important provision in every life insurance policy is the right to name your
beneficiary.
52. (p. 406) A rider is any document attached to the policy that modifies its coverage by adding
or excluding specified conditions or altering its benefits.
53. (p. 405) The incontestability clause stipulates that the insurance company can dispute the
validity of the policy anytime during the insured’s lifetime.
54. (p. 405) The policy loan provision permits you to borrow any amount up to the cash value of
the policy.
Chapter 12 – Life Insurance
55. (p. 406) Even though it is expensive, you should add the accidental death benefit to any life
insurance policy you purchase.
56. (p. 404) When your life insurance objectives change, you should review the provisions in
your policy before making any decisions regarding the policy.
57. (p. 404) A beneficiary is a person designated to receive something such as life insurance
proceeds, from the insured.
58. (p. 404) Usually, there is no time limit on reinstatement of a lapsed life insurance policy.
Chapter 12 – Life Insurance
59. (p. 404) One important feature of a whole life policy is the nonforfeiture clause.
60. (p. 406) Under the waiver of premium disability benefit provision, the company waives any
premiums that are due after the onset of total and permanent disability.
61. (p. 406) The guaranteed insurability option is desirable if you anticipate the need for
additional life insurance in the future.
62. (p. 406) The cost-of-living protection rider is designed to help prevent inflation from eroding
the purchasing power of the protection your policy provides.
Chapter 12 – Life Insurance
63. (p. 406) Accelerated benefits are life insurance policy proceeds paid to the policyholder who
is terminally ill before he or she dies.
64. (p. 406) The second-to-die option is paid when the first spouse dies.
65. (p. 410) An interest-adjusted index is a method of evaluating the cost of life insurance by
taking into account the time value of money.
66. (p. 408) Life insurance is available from a wide range of private and public sources.
Chapter 12 – Life Insurance
67. (p. 408) The financial strength of an insurance company may be a major factor in holding
down premium costs for consumers.
68. (p. 409) When buying life insurance, as a rule, you should deal with companies rated
superior or excellent by the big rating agencies.
69. (p. 409) A chartered life underwriter (CLU) is a life insurance agent who has passed a series
of college-level examinations on insurance and related subjects.
70. (p. 412) The lump-sum payment settlement option is the least used option.
Chapter 12 – Life Insurance
71. (p. 413) Under the life income option, payments are made to the beneficiary for as long as he
or she lives.
72. (p. 413) If life insurance proceeds are left with the company, the company acts as trustee and
pays the interest to the beneficiary.
73. (p. 414) An annuity is a financial contract written by an insurance company to provide you
with a regular income.
74. (p. 415) A fixed annuity is a plan under which the monthly payments vary.
Chapter 12 – Life Insurance
75. (p. 415) When you buy an annuity, the interest on the principal, as well as the interest
compounded on that interest, builds up free of current income tax.
76. (p. 415) A primary reason for buying an annuity is to give you retirement income for the rest
of your life.
77. (p. 389) Typical examples of uses of life insurance proceeds include: