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Chapter 8—Insuring Your Life
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
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
Chapter 8—Insuring Your Life
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
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
e.
200, 50
Chapter 8—Insuring Your Life
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].
117. People share losses through [loss control | insurance].
Chapter 8—Insuring Your Life
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.
126. The premium on your term insurance will likely [increase | stay the same] with each renewal.
Chapter 8—Insuring Your Life
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.
Chapter 8—Insuring Your Life
140. Changing the beneficiary on a life insurance policy is generally [easy | difficult] to do.
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.
Chapter 8—Insuring Your Life
145. You can learn about the financial strength of an insurance company by checking [the SEC's | A. M. Best's] rating
system.
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].
Chapter 8—Insuring Your Life
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.
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.)
Chapter 8—Insuring Your Life
