Introduction to Risk Management and Insurance, 10e (Dorfman/Cather)
Chapter 15 Life Insurance Policies
1) Which of these is the least appropriate use for whole life insurance?
A) Mortgage retirement fund
B) Dependent spouse income fund
C) Retirement need
D) Emergency fund
2) Which of the following policies would have the highest premium for a standard risk male age
27?
A) Level term
B) Whole life continuous premium
C) Whole life paid-up at 65
D) 10-pay whole life
3) Assume that all of the life insurance policies listed below have a $50,000 face value, are sold
by the same insurer, and have identical expense and mortality rates. Which of these, sold to a 27
year old female, should be the least expensive?
A) Term life
B) Whole life
C) Universal life
D) Cannot be determined from the given information
4) Which of the following life insurance policies would have the lowest premium for a male age
40?
A) Level term
B) Whole life continuous premium
C) Whole life paid up at 45
D) Variable life
5) A disadvantage of using a whole life policy for saving is:
A) earnings outside the policy can be greater
B) federal income tax must be paid on the yearly cash value increases
C) creditor protection is available if bankruptcy occurs
D) since premiums must be paid to keep the policy in force, there is the semi-compulsory nature
of saving
6) Which of the following is not a characteristic of universal life insurance?
A) Mortality costs and minimum investment returns are known
B) Face amounts are fixed and premium payments are fixed
C) Pattern of death benefit is selectable
D) Ability to earn competitive returns
7) Which of the following is not correct with respect to universal life insurance?
A) Is interest sensitive
B) Has flexible premiums and benefits
C) Usually involves more guarantees than ordinary whole life
D) The pattern of face amount may be selected
8) All the following are advantages of level premium whole life insurance except:
A) furnishes permanent protection
B) small initial outlay v. single premium whole life
C) combines savings with insurance
D) provides inflation protection
9) Jens is a newly-married man who wants $100,000 of life insurance, but he cannot afford the
ordinary level whole life premium until he gets out of graduate school. He would like to pay less
for the first few years of coverage until he graduates. He can still obtain the desired amount of
insurance for the whole of his life by purchasing:
A) limited-payment whole life
B) single premium whole life
C) deferred premium annuity life
D) convertible term
10) Choose the item below that is not true for group life insurance.
A) Benefit amounts are usually increased by the employer at 5-year intervals.
B) Their number is growing.
C) Benefits are determined by a predetermined formula.
D) The group must not be formed solely to purchase insurance.
11) The accumulation of a reserve consisting of excess payments above the mortality cost in the
early years of a policy is necessary for the:
A) deferred annuity plan
B) minimum reserve standard
C) level-premium plan
D) yearly renewable-term plan
12) Which statement about variable universal life insurance is false?
A) Relatively small premiums are collected on a frequent basis.
B) They provide policyowners with more alternatives for investing cash values in their whole life
policies.
C) They can duplicate universal life insurance.
D) Individual policies are large since it is purchased for employees by their unions.
13) Which of the following best describes what life insurance is designed to protect against?
A) Dying before financial obligations have been met
B) Outliving your income
C) Probability of dying increasing as you grow older
D) Loss of income due to retirement
14) A universal life insurance policy (ULI) is considered to be:
A) term insurance only
B) a form of fixed face, fixed premium whole life insurance
C) a whole life policy where the face amount may be changed at any time
D) providing more flexibility in paying premiums
15) All of the following are true of level premium ordinary whole life insurance except:
A) furnished permanent protection over all of one’s life
B) small initial outlay compared to single premium, whole life
C) combines savings with insurance
D) premiums end at age 65
16) The primary reason life insurance policies have a savings element is to allow the:
A) insured to have money for old age or for other purposes
B) insurer to reduce the cost of insurance by investing money at high interest rates
C) insured to accumulate funds to aid in the long-term financing of private business enterprises
D) insured to obtain lifetime protection at a level premium
17) A term insurance policy that includes a conversion privilege gives the insured the right to:
A) renew the policy for another time period of the same length
B) exchange the term policy for a permanent plan of insurance
C) increase or decrease the death benefit
D) include the nonforfeiture provision in the policy
18) All of the following statements about an ordinary (whole) life insurance policy are true,
except:
A) Premiums can be level throughout the policy period.
B) The face amount is paid if the insured lives to age 65.
C) There is a buildup of cash value that can be borrowed by the policyholder.
D) It can fulfill the insured’s death protection AND saving needs.
19) Regarding variable life insurance, all of the following are true except:
A) provides no mortality or investment guarantees
B) has flexible benefits based on investment returns
C) allows the insured to choose how the cash value is invested
D) is transparent with respect to costs and returns
20) Which of the following is true with regard to term life insurance contracts?
A) Policies of less than 10 year length are illegal in 13 states.
B) One form of term life increases the amount of insurance as the balance due on a mortgage
declines over time.
C) Renewable term life insurance guarantees the insured that upon renewal, his premiums will
not increase.
D) Term insurance provides temporary protection.
21) Which of the following is false with respect to universal life insurance (ULI)?
A) Is interest sensitive
B) Has flexible premiums and benefits
C) Is cheaper than ordinary whole life
D) Has the tax benefits of ordinary life insurance
22) Credit life insurance is:
A) a group life program designed specifically for employees who work in manufacturing
B) commercial insurance sold in large amounts for key man life insurance
C) purchased by a lender
D) sold to employees who work in high-risk industrial manufacturing jobs
23) Which of the following is true?
A) Term life insurance is most suitable when the need for protection is permanent.
B) Decreasing term insurance is useful when the insured’s debt is increasing at a steady,
predictable rate.
C) Whole life insurance is best when the insured desires temporary coverage because its cash
values will refund nearly all premiums paid.
D) Whole life insurance can provide funds whether the insured dies or survives the policy period.
24) When an ordinary life insurance policy becomes payable as a death claim, the beneficiary is
entitled to the:
A) cash surrender value
B) face amount plus the reserve value
C) face amount
D) face amount plus the cash value
25) Which of the following is a permanent need for purchasing life insurance?
A) Funding a child’s college education
B) Paying off a mortgage loan
C) Providing for funeral expenses
D) Funding the readjustment period for a spouse
26) If a term life policy is convertible, the insured has the option to convert it to:
A) cash
B) an annuity
C) a decreasing term policy
D) a permanent form of coverage
27) All of the following statements about term insurance policies are true except:
A) provide protection only for a temporary period of time
B) often can be renewed for additional periods without evidence of insurability
C) often can be converted to a permanent life insurance policy
D) have a cash value that can be taken by the policy owner if she wishes to terminate coverage
early
28) MaryJo owns a whole-life insurance policy on her own life. She has accumulated $40,000 of
cash value in the policy. Which of the following statements is/are true regarding this policy and
the options MaryJo has?
I. She can withdraw the entire $40,000 at any time and forfeit her death protection.
II. She can borrow the $40,000, but will lose all her death protection until the loan is paid back.
III. If MaryJo dies tomorrow with no policy loan outstanding, her beneficiary will receive the
face value of the insurance policy, while the $40,000 in cash value becomes a survivorship
benefit for other insureds.
A) I, II, and III
B) I and II
C) II and III
D) I and III
29) After taking an introductory course in insurance, your parents ask you what type of life
insurance policy they should purchase to get permanent death protection with a fixed premium
amount, a guaranteed rate of return on their cash value, and a level death benefit. Which type of
life insurance will you recommend?
A) Term life
B) Whole life
C) Universal life
D) Variable life
30) After taking an introductory course in insurance, your parents ask you what type of life
insurance policy they should purchase to get permanent death protection with the option to pay
more premiums some years, and less in other years. They also want a minimum guaranteed rate
of return on their cash value. Which type of life insurance will you recommend?
A) Term life
B) Whole life
C) Universal life
D) Variable life
31) After taking an introductory course in insurance, your parents ask you what type of life
insurance policy they should purchase if they want permanent death protection and the potential
for earning a relatively high rate of return on their cash value. Which type of life insurance
would you suggest?
A) Term life
B) Whole life
C) Universal life
D) Variable life
32) Your best friend discovers you just took an introductory insurance course. He asks you what
type of life insurance policy he should buy, given that he is 28 years old. Which type of life
insurance should you recommend?
A) Term life
B) Whole life
C) Universal life
D) Cannot be determined from the given information
33) The excess interest provision in life insurance means that the cash value will increase:
A) faster than the guaranteed rate if the insurer actually earns a greater return than the guaranteed
rate
B) faster than the guaranteed rate even if the insurer does not earns a greater return than the
guaranteed rate
C) faster than it would with a universal or variable life policy
D) slower than the guaranteed rate
34) Whole life insurance policy sales have declined in recent years. Which of the following is
not a reason for this decline?
A) Term life insurance is typically a better choice for most consumers.
B) Term life insurance policies offer very competitive rates and attractive prices.
C) Variable life policies have gained popularity.
D) Inflation in the late 1970s and early 1980s
35) Term insurance is normally purchased by people between the ages of:
A) 25 and 65
B) 45 and 65
C) 20 and 60
D) 25 and 75
36) Why have term life insurance rates decreased in recent years?
A) Improved human longevity
B) Decrease in percentage of the population infected with HIV/AIDS
C) Regulatory intervention
D) They have not decreased; this is a trick question.
37) Term life insurance has significantly increased in popularity. Why?
A) Lower rates and greater tax deductions offered to the wealthy
B) Lower rates and tax credit incentives offered to the poor
C) Stable rates with increased benefits for everyone
D) Lower rates and availability of tax-advantaged savings plans
38) Which of the following is not a type of term life insurance?
A) Single-year term
B) Single-month term
C) Multiyear term
D) Term to a specific age
39) Which of the following is not a feature of universal life insurance?
A) Single-year term
B) Flexibility of premium payment
C) Ability to benefit from interest rate increases
D) Flexibility of death benefits
40) Which of the following is not a reason to buy cash-life insurance?
A) Forced savings
B) Tax savings
C) Professional investment management
D) Protection against declaration of bankruptcy
41) A convertible term policy allows the insured to convert a term policy into any other type of
policy including a different type of term policy.
42) Credit life insurance is life insurance sold on credit; the premium payments are borrowed.
43) Under a group life insurance plan, in general, individuals do not have to pass an insurer’s
medical examination.
44) In group insurance, the conversion privilege allows an insured to convert from a whole life to
a term policy.
45) In group life insurance, an insurer might accept an exposure who could not meet the insurer’s
standards for individual life insurance.
46) Premiums for industrial insurance are collected at the insured’s home, often on a weekly
basis.
47) In a limited payment policy, only a portion of the face amount is paid if death occurs in the
early years.
48) Universal life insurance is an interest sensitive product.
49) When life insurance is provided on a level premium basis, the premium payments increase as
the insured ages.
50) There is more Individual Life Insurance Coverage in the United States compared to Group
Life Insurance Coverage.
51) Mortality tables assume that all people die at age 95.
52) In general, what are the uses for term life insurance? Provide examples.
53) Explain why there is a savings element to a whole life insurance contract.
54) What are the advantages of saving with cash value whole life insurance?
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55) Why does the death benefit increase under certain conditions in the universal life Plan A
(fixed face amount)?
56) What are the features that distinguish universal life from traditional forms of life insurance?