Chapter 8—Insuring Your Life
KEYWORDS: Bloom’s: Remembering
79. In determining available resources that would be available after death, you would generally not consider
a. social security benefits.
b. earning potential of surviving children.
c. earning potential of surviving spouse.
d. savings.
e. market value of home in which survivors will reside.
80. Term life insurance is characterized by
a. level annual premiums throughout life.
b. premium amounts related to age.
c. inappropriateness for most person’s life insurance needs.
d. non-convertibility.
e. cash value.
81. ____ is not descriptive of an option of term life insurance.
a. Limited payment
b. Decreasing
c. Convertible
d. Renewable
e. Annual
82. The settlement option chosen by most beneficiaries is
a. lump sum.
b. interest only.
Chapter 8—Insuring Your Life
c. fixed amount.
d. fixed time.
e. life income.
83. ____ is a common provision in many term policies.
a. A reward clause
b. A renewable clause
c. Cash value
d. A limited clause
e. An arbitration clause
84. If life insurance is convertible, the policy can be
a. transferred to the life of another person.
b. exchanged for cash.
c. changed to health or disability protection
d. changed to another type of life insurance.
e. revised as needed.
85. Decreasing term insurance usually has a decreasing face value and
a. a decreasing premium.
b. a level premium.
c. an increasing premium.
d. a fluctuating premium.
e. none of the above.
Chapter 8—Insuring Your Life
86. Rodney and Toni are a young couple with two small children. They are doing well financially but their life insurance
needs are high and their budget is tight. What type of life insurance will give them the most protection for their money?
a. continuous premium
b. universal life
c. paid up life
d. term life
e. variable life
87. The least expensive form of whole life insurance protection is
a. term.
b. straight life.
c. limited payment.
d. universal.
88. If the objective of your life insurance program is to get the greatest death protection now for your insurance dollars,
you should choose ____ insurance.
a. term
b. universal
c. limited pay
d. industrial
e. whole life
Chapter 8—Insuring Your Life
89. Whole life insurance is designed to provide
a. protection only.
b. savings only.
c. savings and loan value.
d. protection and savings.
e. loan value only.
90. You want to pay premiums for 20 years and have your insurance premium obligations finished at that time, but you
feel you will need life insurance for the rest of your life. You should choose ____ insurance.
a. continuous premium
b. limited pay
c. single premium
d. multiple premium
e. universal
91. Which of the following is not characteristic of universal life insurance?
a. flexible premiums
b. choice of how the accumulation account is invested
c. Option A level death benefit
d. Option B stated coverage plus accumulated cash value
e. separate identification of death protection and savings portions
92. 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 ____ life policy.
a. term
Chapter 8—Insuring Your Life
b. whole life
c. limited payment
d. universal
e. none of the above
93. The insurance portion of a universal life policy is most analogous to
a. mortgage insurance.
b. group insurance.
c. whole life insurance.
d. term insurance.
e. variable insurance.
94. Universal life insurance is
a. a deferred premium payment policy.
b. primarily sold to college students.
c. a combined investment plan and insurance policy.
d. a provision for a secondary beneficiary.
e. all of the above.
95. An insured usually chooses variable life insurance in order to
a. provide more flexible coverage.
b. emphasize the savings portion while still having death protection.
c. lessen the savings feature of life insurance.
d. substitute for fixed-dollar insurance protection.
e. reduce insurance premiums.
Chapter 8—Insuring Your Life
96. ____ can be both an advantage and a disadvantage of universal life insurance.
a. Flexible premiums
b. Tax features
c. High returns
d. Unbundling
e. Fixed returns
97. The death benefit of ____ life insurance may go down due to poor investment returns.
a. limited pay
b. whole
c. universal
d. variable
e. c and d
98. ____ and ____ are both relatively expensive types of decreasing-term life insurance.
a. Group life; credit life
b. Credit life; mortgage life
c. Mortgage life; industrial life
d. Industrial life; special-purpose policies
e. Special-purpose policies; group life
Chapter 8—Insuring Your Life
99. Life insurance policies with small face amounts where the premium may be collected weekly by agents is
a. credit life insurance.
b. mortgage life insurance.
c. industrial life insurance.
d. special purpose insurance.
e. group life insurance.
100. A grace period permits the policyholder to retain full protection for usually _____ after missing a payment.
a. 31 days
b. 65 days
c. 90 days
d. 120 days
e. 180 days
101. Marilyn Simms died with a $200,000 life insurance policy. Her husband, Jack, was the primary beneficiary and their
children, Mimi (age 24) and Ann (age 30), were the contingent beneficiaries. All three survived Marilyn. How would the
policy proceeds be distributed?
a. $200,000 to Jack
b. $100,000 each to Mimi and Ann
c. $100,000 to Jack and $50,000 each to Mimi and Ann
d. $66,666 each to Jack, Mimi, and Ann
e. $150,000 to Jack and $25,000 each to Mimi and Ann
102. Which of the following policy features allow the insured to increase coverage periodically without showing proof of
insurability?
Chapter 8—Insuring Your Life
a. multiple indemnity clause
b. guaranteed purchase options
c. disability clause
d. paid-up insurance option
e. extended-term option
103. The _________ option allows a terminally ill insured to receive a percentage of the death benefit for immediate use.
a. multiple indemnity
b. living benefits
c. viatical settlement
d. needs analysis
e. b and c
104. Key features found in most life insurance contracts include
a. settlement options.
b. policy reinstatement.
c. change of policy.
d. all of the above.
e. none of the above.
105. Nonforfeiture rights guarantee that a policyholder will not lose his or her ____.
a. face value.
b. death benefits for survivors.
c. cash value.
d. premium refunds.
e. premium reductions.
Chapter 8—Insuring Your Life
106. A participating policy
a. has no incontestability clause.
b. is a form of endowment insurance.
c. may pay dividends.
d. requires a savings function.
e. contains no tax benefits.
107. With most insurers, paying life insurance premiums on a(n) ____ basis will allow you to avoid a fee.
a. annual
b. semiannual
c. quarterly
d. monthly
e. biennial
108. When a primary beneficiary dies before the insured, proceeds are payable to
a. the state
b. the probate court
c. the insured’s estate
d. the contingent beneficiary or beneficiaries
e. the insurance company keeps the proceeds
Chapter 8—Insuring Your Life
109. The basic assumptions that the company uses to compute its insurance illustrations include all except
a. age.
b. sex.
c. health status.
d. income.
110. A life insurance policy should contain all the following except
a. Policy description
b. Underwriting discussion
c. Column definitions and key terms
d. Coinsurance clause
e. Disclaimer
111. Which type of settlement option pays the beneficiary over a specified time frame?
a. Lump sum
b. Interest only
c. Lifetime income
d. Fixed period
e. Fixed amount
112. A ____ option allows a terminally ill insurance holder to sell an interest in the life insurance policy to an investor.
a. participating policy
b. living benefit
c. viatical settlement
d. guaranteed purchase
e. none of the above
Chapter 8—Insuring Your Life
113. With traditional whole life policies sold by an agent, sales commissions and marketing expenses account for at least
___ % of the first year’s premium and at least ___% of total premiums paid over the life of the policy.
a. 20, 5
b. 50, 10
c. 75, 25
d. 100, 20
INSTRUCTIONS: Choose the word or phrase in [ ] that will correctly complete the statement. Select A for the first item,
B for the second item, and C if neither item will correctly complete the statement.
114. Smoking [will | will not] be a factor in determining life insurance premiums.
115. If a loss is certain to occur, there is [a | no] risk.
116. Any activity that reduces the chance that a loss will occur constitutes [risk shifting | loss prevention].
Chapter 8—Insuring Your Life
117. People share losses through [loss control | insurance].
118. You would be most likely to assume the risk of a [small | large] potential loss.
119. In order to predict accurately the number of losses that will occur in a given time, insurance companies must study
[large | small] numbers of cases.
120. Deciding which people will be insured by an insurance company is a function of the [agent | underwriter].
121. Using the needs approach, we look at the survivors’ needs if the income producer dies [tomorrow | before his life
expectancy].
Chapter 8—Insuring Your Life
122. Social security survivors’ benefits typically provide benefits for children through [high school | college].
123. The most accurate way to determine how much life insurance you need is to use the [multiple-of-earnings | needs
analysis] method.
124. If your insurance policy promises to pay death benefits only if you die during a specified time, you have [term |
whole] life insurance.
125. The majority of term policies have a [level | decreasing] face value.
Chapter 8—Insuring Your Life
126. The premium on your term insurance will likely [increase | stay the same] with each renewal.
127. Most term insurance [is | is not] renewable.
128. The cash value will build more quickly with a [low-load | traditional] whole life policy.
129. Annual premiums would be lower with [continuous | limited payment] whole life insurance.
130. The life insurance policy that clearly separates the protection and savings elements is [whole life | universal life].
Chapter 8—Insuring Your Life
131. The policyholder assumes the investment risk with [whole life | variable life] insurance.
132. The [policyholder | insurance company] makes the investment decisions with universal life insurance.
133. The [policyholder | insurance company] makes the investment decisions with variable life insurance.
134. [Credit life | Group] insurance is one of the most expensive forms of life insurance.
135. Group insurance is most likely to be [term | whole life].
Chapter 8—Insuring Your Life
136. Credit life insurance is generally considered to be a [good | poor] life insurance buy.
137. If neither the primary nor secondary beneficiary survives the insured, the life insurance proceeds will be [kept by the
insurance company | paid to the estate of the insured and distributed by the probate court].
138. The beneficiary [will | will not] have to pay income taxes on the proceeds from a life insurance policy.
139. An insured can borrow from the [cash | face] value of her life insurance policy.
140. Changing the beneficiary on a life insurance policy is generally [easy | difficult] to do.
Chapter 8—Insuring Your Life
141. The [lump sum | life income] settlement option is the most commonly selected option by life insurance beneficiaries.
142. Life insurance [will | will not] pay proceeds if an insured is killed in a commercial airline crash.
143. Living benefits would [increase | decrease] the proceeds available for beneficiaries.
144. If you have $300 per year available for life insurance, you could get higher life insurance protection with a
[continuous premium | limited payment] policy.
145. You can learn about the financial strength of an insurance company by checking [the SEC’s | A. M. Best’s] rating
system.
Chapter 8—Insuring Your Life
146. A life insurance agent who takes her profession seriously is likely to have earned the [CPCU | CLU] professional
certification.
147. [Level premium | annual renewable] term policies have become much more popular in recent years.
148. A life insurance policy should contain which of the following? [policy description | co-insurance clause].
149. Insurance is a tool that can lessen [economic | accident] risk.
150. A [viatical settlement | guaranteed purchase option] allows a terminally ill insured to receive benefits before death.
Chapter 8—Insuring Your Life
151. With traditional whole life policies sold by an agent, sales commissions and marketing expenses account for up to
[25% | 150%] of the first year’s premium.
152. Alice is 40 years old and earns $85,000 annually. The multiple earnings approach to determine the amount of life
insurance needed shows that she should have 6.5 times her earnings. How much insurance should Alice have? (Show all
work.)
153. Marco is 45 years old and earns $65,000 annually. The multiple earnings approach to determine the amount of life
insurance needed shows that he should have 6.0 times his annual earnings. An assessment shows total financial resources
needed of $2,148,000 and total financial resources available of $1,848,000. Based on the needs analysis method, how
much insurance should Marco have? (Show all work.)