Ch 11 Flashcards
Which of the following types of families is likely to have the least need for a large amount of life insurance?
A) a blended family
B) a traditional family
C) a single person family
D) a sandwiched family
C
The human life value is defined as the
A) present value of a deceased breadwinner’s future gross income.
B) future value of a deceased breadwinner’s past earnings.
C) present value of the family’s share of a deceased breadwinner’s future earnings.
D) future value of the family’s share of a deceased breadwinner’s future earnings.
C
Which of the following pieces of information is needed to calculate a person’s human life value?
A) the marital status of the person.
B) the person’s estimated annual Social Security benefits after retirement.
C) the person’s cost of self-maintenance.
D) current outstanding debts, including mortgage debt.
C
To calculate a human life value, it is necessary to deduct certain costs from a person’s average annual earnings. These costs include
A) funeral costs.
B) income taxes.
C) investment income.
D) pension benefits after retirement.
B
All of the following are defects which limit the usefulness of the human life value approach in determining the correct amount of life insurance to purchase EXCEPT
A) The effects of inflation are ignored.
B) Other sources of income for survivors are ignored.
C) Earnings are assumed to remain constant.
D) Earnings during the individual’s productive lifetime are ignored.
D
Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are) true?
I. It involves an analysis of various family needs which must be met if a family breadwinner dies.
II. Its use is appropriate only if a person currently has no life insurance protection.
I only
Which of the following is a cost/expense that an estate clearance fund is designed to pay?
A) burial expenses
B) retiring the mortgage
C) education costs
D) income for the widow(er) during the readjustment period
A
What is the length of the readjustment period which is considered when the needs approach is used to determine the amount of life insurance to own?
A) 3 to 6 months
B) 1 to 2 years
C) until the youngest child reaches age 18
D) until the surviving spouse reaches age 65
B
Under the needs approach, when is the dependency period of a surviving spouse assumed to end?
A) 1 or 2 years after the breadwinner’s death
B) when the youngest child reaches age 18
C) when the surviving spouse reaches age 65
D) when the surviving spouse dies
B
The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the
A) emergency period.
B) readjustment period.
C) dependency period.
D) blackout period.
D
Which of the following statements about premature death is (are) true?
I. From an economic standpoint, premature means death before a specified age, such as 65.
II. The economic problem of problem of premature death in the U.S. has declined substantially over time.
II only
Which of the following statements about re-entry term insurance is true?
A) It permits the coverage to be renewed an unlimited number of times as long as insurability is demonstrated.
B) It permits a refund of premiums paid if the term insurance is renewed a specified number of times.
C) It permits a lower renewal premium if the insured demonstrates insurability.
D) It permits a lapsed whole life policy to be reinstated as term insurance.
C
Which of the following is a noneconomic cost associated with premature death?
A) reduction in the standard of living
B) loss of a parental role model
C) additional expenses, such as uninsured medical bills
D) loss of the deceased breadwinner’s future earnings
B
Tom and Nancy Boyle provide financial support for their two children. In addition, they provide financial support for Tom’s aged father and Nancy’s aged mother. The Boyle family can be described as a
A) blended family.
B) single-parent family.
C) two-income earner family.
D) sandwiched family.
D
Jessica is an agent for LMN Life Insurance Company. She met with Brad, who was interested in purchasing life insurance. Jessica explained the various uses of life insurance, including income for Brad’s wife during the 1- or 2-year period following Brad’s death. This period is known as the
A) dependency period.
B) estate clearance period.
C) blackout period.
D) readjustment period.
D
Which of the following statements regarding convertible term insurance is true?
A) Evidence of insurability must be provided to convert the policy.
B) More term policies are converted using the original-age method than using the attained-age method.
C) The converted coverage has a lower face amount than the term coverage.
D) The annual premium for the cash value coverage is lower if an original-age conversion is used than if an attained-age conversion is used.
D
Bill is attempting to determine how much life insurance to purchase. He has two dependent children and his wife does not work outside of the home. An advisor suggested that Bill should consider Social Security benefits when doing his life insurance planning. One concern in this regard is the period after Social Security benefits to a widow terminate until they resume again. This period is called the
A) blackout period.
B) dependency period.
C) emergency period.
D) readjustment period.
A
When using the needs approach, several “special needs” should be considered. One special need is money to cover unexpected events, such as major car repairs, dental bills, or home repairs. Money set aside for this purpose is called a(n)
A) estate clearance fund.
B) emergency fund.
C) readjustment period fund.
D) mortgage redemption fund.
B
Most family heads need substantial amounts of life insurance. However, with limited income, money spent on life insurance reduces the amount of discretionary income available for other high-priority needs. What an insured person gives up when he or she purchases life insurance instead of using the premium dollars for other purposes is called the
A) estimated cost of life insurance.
B) net cost of life insurance.
C) real (inflation-adjusted) cost of life insurance.
D) opportunity cost of buying life insurance.
D
Which of the following statements about yearly renewable term insurance is (are) true?
I. It requires evidence of insurability for renewal.
II. It is most appropriate when an insured needs lifetime protection.
Neither I nor II
What happens to the premiums for yearly renewable term insurance as an insured gets older?
A) They increase at an increasing rate.
B) They increase at a decreasing rate.
C) They decrease at a constant rate.
D) They remain level.
A
Which of the following statements about term insurance is true?
A) The coverage is appropriate if the goal is permanent lifetime protection.
B) Most policies can be renewed for additional periods without evidence of insurability.
C) Premiums increase at a constant rate each time the policy is renewed.
D) Most policies have a cash value that is refunded when coverage ceases.
B
All of the following statements about the conversion of a term policy are true EXCEPT
A) Under an attained age conversion, the premium is based on the insured’s attained age at the time of conversion.
B) Under an original age conversion, the policyowner must pay a financial adjustment in addition to the premium for the new policy.
C) Most insurers require original age conversion to take place within a specified period (5 years, for example) of the issue of the term policy.
D) Evidence of insurability is required before a conversion is permitted.
D
