Chapter 13 - Buying Life Insurance

Question 1

Define Certified Financial Planner

Answer 1

Professional who has attained a high degree of technical competency in financial planning and passed a series of professional examinations.

Question 2

Define Chartered Financial Consultant

Answer 2

An individual who has attained a high degree of technical competency in the fields of financial planning, investments, and life and health insurance and has passed professional examinations administered by the American College.

Question 3

Define Chartered Life Underwriter

Answer 3

An individual who has attained a high degree of technical competency in the fields of life and health insurance and has passed professional examinations administered by The American College.

Question 4

Define Interest-adjusted cost method

Answer 4

Method of determining cost to an insured of a life insurance policy that considers the time value of money by applying an interest factor to each element of cost.

Question 5

Define Linton Yield

Answer 5

The average annual rate of return on a cash-value policy if it is held for a specified number of years.

Question 6

Define Net Payment Cost Index

Answer 6

Method of measuring the cost of an insurance policy to an insured if death occurs at the end of some specified time period. The time value of money is taken into consideration.

Question 7

Define No-load or low-load life insurance

Answer 7

Insurance sold directly to the public by using telephone reps or fee-only financial planners. Advantage is the marketing expenses are substantially lower.

Question 8

Define Surrender Cost Index

Answer 8

Method of measuring the cost of an insurance policy to an insured if the policy is surrendered at the end of some specified time period. The time value of money is taken into consideration.

Question 9

Define Traditional Net Cost Method

Answer 9

Method of determining cost to an insured of a life insurance policy, determined by subtracting the total dividends received and cash value at the end of a period from the total premiums paid during that period. Does not consider the time value of money.

Question 10

Define Yearly Rate-Of-Return Method

Answer 10

A method for calculating the yearly rate of return on the savings component of a cash-value policy.

Question 11

What four major factors should be considered when purchasing life insurance?

Answer 11

• Annual premiums
• Cash values
• Dividends
• Time Value of money

Question 12

What is the biggest defect with the Traditional Net Cost Method?

Answer 12

It does not consider the time value of money