CH10: Financial Planning with Life Insurance

Question 1

Life insurance protects those who purchase _______

Answer 1

a policy

Question 2

What is life insurance?

Answer 2

an agreement that the insurer will pay a lump sum to a named beneficiary at the time of the policy holder’s death

Question 3

What is the purpose of life insurance?

Answer 3

protect someone who depends on you for financial loss related to your death

Question 4

What can life insurance be used for?

Answer 4

paying mortgage, lump sum to children, children’s education, donations to charity, retirement income, savings, regular income for survivors, pay estate and gift taxes, set up estate

Question 5

a __________ _________ provides the odds of your death based on age and sex

Answer 5

mortality table

Question 6

If you are more likely to die, your insurance premium is _________
If you are less likely to die, your premium is ______

Answer 6

high, low

Question 7

Life expectancy in 1900

Life expectancy in 2010

Answer 7

male: 46.3, 76.4
female: ?, 81.2

Question 8

Do you need life insurance?

Answer 8

do people depend on you for income, single with a lot of debt, support family

Question 9

the ‘easy method’

Answer 9

70% of your salary for 7 years

Question 10

the DINK method

Answer 10

dual income, no kids; spouse makes as much or more than you do
funeral + half of debts

Question 11

what are the 2 types of insurance companies

Answer 11

stock and mutual

Question 12

Stock life insurance is owned by _______ and offers a _______ policy

Answer 12

shareholders, non-participating

Question 13

Mutual life insurance is owned by ______ and offers a ______ policy

Answer 13

policy holders, participating

Question 14

The dividends from stock insurance goes to the ______

Answer 14

shareholders

Question 15

the dividends from mutual insurance goes to the __________

Answer 15

policyholders

Question 16

Most life insurance companies are what type?

Answer 16

Stock

Question 17

Policy holders with _______ companies pay higher premiums

Answer 17

mutual

Question 18

what are the types of LI policies?

Answer 18

term, whole, group, credit, endowment

Question 19

Term LI is ________

Answer 19

temporary

Question 20

With ________ LI you pay the premium as long as you live; the amount is determined by…

Answer 20

whole; age when policy starts

Question 21

Whole LI _______ cash value and provides ________

Answer 21

accumulates, death benefits

Question 22

Options for whole LI

Answer 22

limited payment, variable, adjustable, universal

Question 23

With limited WLI, premiums are paid _______ or until ________

Answer 23

for a stipulated time (20, 30 yrs); holder reaches a specified age (65)

Question 24

With variable WLI, a minimum death benefit is _______

Answer 24

guaranteed

Question 25

Universal WLI allows the most ______. The premium can be changed _________ without altering ______

Answer 25

flexibility; unlimitedly, coverage

Question 26

Group LI

Answer 26

offered by employer; termed LI, no physical required

Question 27

Credit LI

Answer 27

debts will be paid off if you die–also protects lenders; expensive

Question 28

Endowment LI

Answer 28

coverage for a specific period of time that pays holder if alive at the end of the term

Question 29

Key Provisions of LI

Answer 29

beneficiary and contingents; incontestability clause, length of grace period, reinstatement of lapsed policy, policy loan provision, suicide clause, policy rider

Question 30

An incontestability clause prevents the issuer from _______ for any reason

Answer 30

disputing the policy

Question 31

What is a policy rider?

Answer 31

modifies the coverage through exclusions and altering benefits

Question 32

Examples of policy riders

Answer 32

waiver of premium disability benefit, accidental death benefit, guaranteed insurability option, cost-of-living protection, accelerated benefits, second-to-die option

Question 33

What to consider when buying LI

Answer 33

present and future income, other savings, group LI, annuities and pension, Social Security, financial strength of financial institution

Question 34

Examine _____ and _____ when looking to purchase insurance

Answer 34

private and public sources

Question 35

Popular rating companies

Answer 35

AM Best, Standard and Poor’s, Duff and Phelps, Moody’s

Question 36

Steps of obtaining a policy

Answer 36

apply, provide medical history, read contract (10-day look policy), give copy to lawyer and beneficiaries

Question 37

Settlement options

Answer 37

lump-sum payment, life income

Question 38

What is an annuity?

Answer 38

financial contract written by insurance company providing you with regular income

Question 39

Uses for an annuity

Answer 39

supplement retirement, shelter income from taxes, longer life = more benefit

Question 40

What should be funded before considering an annuity?

Answer 40

IRA, Keogh, 401(k)

Question 41

Benefits of Annuity?

Answer 41

retirement income for life, compounded interest grows tax free until withdrawn, no max annual contribution, beneficiary guaranteed minimum amount

Question 42

Types of annuities

Answer 42

immediate, deferred, index, fixed, variable

Question 43

a ______ ______ will be applied to an annuity if withdrawn within a specified time period

Answer 43

surrender charge

Question 44

A mortality and expense risk charge is ____ of account value

Answer 44

1.25%

Question 45

Administrative fees on annuities

Answer 45

$25-30/yr, 0.25%/yr

Question 46

Main difference between annuity and LI

Answer 46

annuity pays while alive, LI pays after death

Question 47

With variable annuities, the monthly payments can _____ based on ______

Answer 47

vary; stocks and other investments