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Personal Finance > Chapter 8: Insuring Your Life > Flashcards

Chapter 8: Insuring Your Life Flashcards

1
Q

insurance that helps to replace lost income if premature death occurs.

A

life insurance

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2
Q

insurance that covers medical costs.

A

health insurance

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3
Q

insurance that reimburses you if your property is damaged or destroyed.

A

property insurance

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4
Q

what is the primary risk that is mitigated by insurance?

A

change of economic loss

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5
Q
  1. risk avoidance
  2. loss prevention and loss control
  3. risk assumption
  4. insurance

These are all methods of combating…

A

risk.

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6
Q

avoiding situations that may cause loss.

A

risk avoidance

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7
Q

risk avoidance is attractive when the cost of avoidance is less than the cost of handling a situation another way.

A

true

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8
Q

activities that reduce the chance that loss will occur.

A

loss prevention

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9
Q

activities that lessen the severity of the loss once it has occured.

A

loss control

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10
Q

involves bearing the risk of loss.

A

risk assumption

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11
Q

a contract between the insured and an insurance company that agrees to reimburse you for losses according to specified terms.

A

insurance

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12
Q

what must the insured pay to obtain insurance?

A

insurance premium

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13
Q

statistical information and loss experiences analyzed by the insurance company is referred to as…

A

actuarial data.

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14
Q

process of deciding who the insurance company insures and the premium amounts charged.

A

underwriting

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15
Q

occurs when a high-risk client obtains insurance coverage.

A

adverse selection

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16
Q
  1. financial protection for dependents
  2. protection from creditors
  3. tax benefits
  4. savings vehicle

These are the benefits of…

A

life insurance.

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17
Q

what type of people need life insurance?

A

only those who have dependents (through marriage, with kids, etc.)

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18
Q

method of assessing how much insurance one needs by multiplying gross annual earnings by some selected number to arrive at the estimated coverage.

A

multiple-of-earnings method

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19
Q

method of assessing how much insurance one needs by assessing total economic needs, determining financial resources, and assigning life insurance accordingly.

A

needs analysis method

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20
Q

amount of money needed to maintain lifestyle, extra expenses, special needs, debt liquidation, and liquidity.

A

economic needs

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21
Q

list all money sources to determine,,,

A

financial resources.

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22
Q

economic needs - financial resources =

A

life insurance needed

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23
Q

benefit that provides basic support to families.

A

social security survivor’s benefits

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24
Q

what 2 things make it harder for an individual to obtain insurance and, if they do, it costs more?

A
  1. health problems
  2. risky behaviors/occupation
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25
Q

What are the 5 different types of insurance policies?

A
  1. term
  2. whole
  3. universal
  4. variable
  5. group
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26
Q

policy that provides specified amount of coverage for set period, is the simplest life insurance policy, grants beneficiaries full amount after death, has 5-30 year periods, and premiums are paid on annual, semiannual, or quarterly basis.

A

term life insurance

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27
Q

what are the 2 types of term life insurance policies?

A
  1. straight
  2. decreasing
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28
Q

type of term life insurance that is written for a set number of years during which coverage remains the same and premium can be either on an annual renewable term policy or a level premium term policy.

A

straight term life insurance

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29
Q

type of term life insurance where the amount of protection decreases over the policies life and has higher premiums.

A

decreasing term life insurance

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30
Q

term life insurance has lower premiums, temporary coverage (that’s not renewable), has a convertibility provision, and is a longer term policy.

A

true

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31
Q

3 types of whole life insurance policies??

A
  1. continuous premium
  2. limited payment
  3. single premium (SPLI)
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32
Q

type of insurance provides permanent coverage during the individual’s life, has cash value, a return on investment, and a nonforfeiture right.

A

whole life insurance

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33
Q

type of whole life insurance that pays a level premium annual and offers the greatest amount of permanent death protection and least savings.

A

continuous premium

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34
Q

type of whole life insurance where the premium is based on a specified period during which a level premium is charged

A

limited payment

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35
Q

type of whole life insurance that is purchased w/ 1 cash premium payment @ inception of contract for rest of life, is a tax-sheltered investment vehicle, and contains a modified endowment contract (MEC).

A

single premium (SPLI)

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36
Q

whole life insurance payments contribute toward building an estate, has nonforfeiture option, policy reinstatement option, and a participating policy.

A

true

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37
Q

a policy where dividends are paid in cash, premium reductions, dividend accumulation, and/or paid-up additions.

A

participation policy

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38
Q

life insurance with permanent cash value that combines death benefits and tax-sheltered accounts w/ interest which are unbundled.

A

universal life insurance

39
Q

when items are identified separately in premium.

A

unbundling

40
Q

life insurance that’s like a mutual fund, has coverage that varies w/ profits in investment accounts provided.

A

variable life insurance

41
Q

life insurance with 1 master policy where each member receives a certificate of insurance.

A

group life insurance

41
Q

changing from group life insurance to individual insurance is referred to as policy…

A

portability.

42
Q
  1. compare costs and features of insurance policies
  2. select an insurance company
  3. choose an agent

These are the 3 steps involved in buying…

A

life insurance

43
Q

you should decide how much and what kind of policy you want before comparing costs and interest.

44
Q

insurance rates may increase over time.

45
Q

you should consider a firm’s reputation, financial history, commission/fees, policy provisions, investment performance, and dividend history when considering an…

A

insurance company.

46
Q

a firm’s ability to pay future claims by policyholders.

A

claims paying ability

47
Q

when choosing an insurance agent, obtain recommendations from professionals, consider their education level and designations, and notice how they answer questions.

48
Q
  1. Beneficiary clause
  2. settlement options
  3. policy loans
  4. premium payments
  5. grace period
  6. nonforfeiture options
  7. policy reinstatement
  8. change of policy

These are the 8 key features of…

A

life insurance policies.

49
Q

clause that ensures that beneficiary receives death benefits.

A

beneficiary clause

50
Q

what are the 2 types of beneficiaries?

A
  1. primary
  2. contingent

ALSO

irrevocable beneficiary

51
Q

settlement options determine how proceeds are paid out.

52
Q
  1. lump sum
  2. interest-only
  3. fixed period
  4. fixed amount
  5. life income

These are the 5 types of…

A

settlement options.

53
Q

settlement option where entire death benefit is paid out in single amount.

54
Q

settlement option where taxable interest only is received for a specific period until the principal is needed.

A

interest-only

55
Q

settlement option where the face amount and interest is paid out over a fixed period.

A

fixed period

56
Q

settlement option where fixed payments are made out until the proceeds run out.

A

fixed amount

57
Q

settlement option that guarantees to pay beneficiary a certain amount for the rest of their life.

A

life income

58
Q

feature of life insurance that’s an advance made by the firm to policyholder against whole life policy.

A

policy loans

59
Q

policy loans are secured by the cash value of the policy, require interest payments, and may be subject to tax penalties.

60
Q

life insurance feature that is involves annual, semiannual, quarterly, or monthly payments that are due in advance of due date.

A

premium payments

61
Q

feature of life insurance that allows holder to retain protection for a short time after missing the payment date.

A

grace period

62
Q

feature of life insurance that pays the cash value insurance policyholder the policy’s cash value when the policy is terminated before maturity date.

A

nonforfeiture options

63
Q

what are the 2 nonforfeiture options?

A
  1. paid-up insurance
  2. extended term insurance
64
Q

nonforfeiture option where cash value is used to buy a new, single premium policy w/ lower face value.

A

paid-up insurance

65
Q

nonforfeiture option that uses accumulated cash value to buy a term life policy for the same face value as the lapsed policy and a coverage period is determined by the amount of term protection that the single premium payment buys at the insured’s current age.

A

extended term insurance

66
Q

feature of life insurance that allows you to revive the original contract within 3-5 years.

A

policy reinstatement

67
Q

feature of life insurance that allows one to change your policy without a penalty.

A

change of policy

68
Q

an optional feature of life insurance that increases the face amount of the policy if the insured dies in an accident.

A

multiple indemnity clause

69
Q

an optional feature of life insurance that contains a waiver-of-premium and a disability income portion.

A

disability clause

70
Q

a payment of premiums if the insured becomes totally disabled before 60 years old.

A

waiver-of-premium

71
Q

$5-10 per every $1,000 of face value of policy paid monthly.

A

disability income portion

72
Q

an optional feature of life insurance that allows holder to purchase additional coverage at stipulated intervals without insurability evidence.

A

guaranteed purchase option (GPO)

73
Q

an optional feature of life insurance that voids the contract if suicide is committed within 2 years.

A

suicide clause

74
Q

what are the 3 life insurance policy exclusions?

A
  1. aviation
  2. war
  3. hazardous occupation/hobby
75
Q

an optional feature of life insurance whereby the holder is entitled to receive policy dividends reflecting changes in the company’s anticipated mortality experience, investment earnings, and operating expenses.

A

participating policy

76
Q

an optional feature of life insurance that allows the insured to receive a percentage of death benefits prior to death in case of diagnosed terminal illness or expense treatment.

A

living benefits (accelerated benefits)

77
Q

an optional feature of life insurance that allows terminally ill holder to receive a percentage of death benefits for immediate use through a 3rd party investor.

A

viatical settlement

78
Q

a hypothetical representation of a policy’s performance that reflects that the company relies on presenting results to a prospective client.

A

life insurance policy illustration

79
Q

what are the 2 parts of a life insurance policy illustration?

A
  1. guaranteed illustration
  2. current illustration
80
Q

part of a life insurance policy illustration that must disclose the worst case scenario.

A

guaranteed illustration

81
Q

part of a life insurance policy illustration that is based on credit rates and current mortality charges in effect.

A

current illustration

82
Q
  1. policy description, terms, and features
  2. underwriting discussion
  3. column definitions and key terms
  4. disclaimer
  5. signature page

These are additional sections of a…

A

life insurance policy illustration.

83
Q

Marily died w/ $200,000 life insurance policy. Her husband, Jack, is the primary beneficiary and their children, Mimi (24) and Ann (30), are the contingent beneficiaries. If all 3 survive Marily, how are the proceeds distrbuted?

A

$200,000 to Jack

84
Q

A grace period permits a policyholder to retain full death protection even though the premium hasn’t been paid for how many days?

85
Q

what insurance policy provides coverage for a set period?

A

term life insurance

86
Q

Henry must make set premium payments on his insurance policy until he dies, and if he cancels his policy, he will receive the cash value. What plan does Henry have?

A

continuous whole life policy

87
Q

term life insurance is characterized by lower what than other types of insurance?

88
Q

the process used by insurers to decide who can be insured and to determine applicable rates that will be charges for premiums.

A

underwriting

89
Q

the death benefits of variable life insurance policy may go down because of poor investment returns.

90
Q

you should purchase insurance from a company that has been in business for at least…

91
Q

employers often provide group life insurance as a fringe benefit for their full-time employees.

92
Q

you can learn about the financial strength of an insurance company by checking Standard & Poor’s rating system.

Personal Finance (9 decks)

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