1-6. The Life Insurance Selection Process

Question 1

1. The advantages of keeping an existing life insurance policy should be considered before replacing the policy.

Answer 1

True

1.

Question 2

2. Survivors’ needs should be taken into account when considering the amount of life insurance coverage needed.

Answer 2

True

2.

Question 3

3. Prior to determining an appropriate amount of life insurance coverage, a client must determine life insurance goals.

Answer 3

True

3.

Question 4

4. Although a client’s life insurance “needs” should be considered when determining an appropriate amount of coverage, her “wants” should probably be ignored.

Answer 4

False

4. Rationale: A client’s “wants” are nearly as important as a client’s “needs.” And once needs are met, wants should be given appropriate credence.

Question 5

5. The anticipated earnings of a surviving spouse should be considered when determining life insurance needs.

Answer 5

True

5.

Question 6

6. It is difficult to predict a child’s higher-education costs. Accordingly, these costs should not be considered when determining life insurance coverage.

Answer 6

False

6. Rationale: An estimate of higher-education costs must be made prior to determining insurance coverage. As the child gets older, higher-education costs will be easier to predict and the life insurance plan may be fine-tuned

Question 7

7. An emergency fund for survivors should be equivalent to one month of their fixed and variable expenses.

Answer 7

False

7. Rationale: An amount equivalent to three to six months of total expenses should be set aside for an emergency fund.

Question 8

8. If a client can qualify for one type of insurance, he or she generally can qualify for any type of insurance (with exceptions).

Answer 8

True

8.

Question 9

9. A pitfall in selecting a life insurance product is to assume that a variable product will outperform a nonequity product.

Answer 9

True

9.

Question 10

10. One effective method used to compare the costs of two policies is to determine what they cost per $1,000 of coverage.

Answer 10

True

10.

Question 11

11. If the price of life insurance is roughly the same as the insurance company’s cost to pay death claims (the “raw material cost”), the insurance is reasonably priced.

Answer 11

True

11.

Question 12

12. There is no perfect method of evaluating an individual insurance policy, but some ways are more appropriate than others, depending upon individual circumstances.

Answer 12

True

12.

Question 13

13. A client’s life insurance coverage should be reviewed periodically to take into account the client’s changing needs, goals, and circumstances.

Answer 13

True

13.

Question 14

14. The insurance commissioners in most states actively encourage replacement of existing insurance policies.

Answer 14

False

14. Rationale: To discourage arbitrary replacement of policies, most state insurance commissioners require some form of agent disclosure when replacing an existing policy.

Question 15

15. A consideration when determining life insurance coverage is whether the survivors want to exhaust the proceeds or preserve
    them.

Answer 15

True

15.

Question 16

16. Term insurance is frequently the least expensive short-term solution to cover large life insurance needs.

Answer 16

True

16.