Final Exam - LI

Question 1

Uses of Life insurance

Answer 1

create estate, fund education, bring income, pay debt, pay expenses/tax

Question 2

Advantages of LI

Answer 2

money paid after death, protected from creditors, tax-free death benefit, no probate estate, living values, accelerated death benefit

Question 3

Taxation of LI

Answer 3

death benefit (tax free) , policy dividend (tax free), policy premiums (taxed)

Question 4

Tax of LI (cash accumulation) of tax deferred

Answer 4

dont have to pay taxes on interest as it accrues

Question 5

Tax of LI (cash) of withdrawals

Answer 5

tax only on interest element (current cash - premium)

Question 6

Cost recovery rule

Answer 6

premiums are paid first (and not taxed)

Question 7

Premium pricing (mortality / large #)

Answer 7

Premiums are paid based on your probability of death, and as # of policyholders increase this help insurers predict and set premiums

Question 8

Premium pricing (insurance company investment income)

Answer 8

insurers invest in assets and doing so help reduce premiums that policyholders need to pay

Question 9

Premium pricing (expenses)

Answer 9

Commissions, underwriting, and operating expense cost are factored into premiums to ensure the insurance company covers its operational expenses

Question 10

Premium pricing (dividends)

Answer 10

not guaranteed, but the policyholder may receive it

Question 11

Term Li

Answer 11

pure death benefit, no cash value, die during period

Question 12

Permanent LI

Answer 12

lifetime protection for death benefit, cash value accumulates, policy can be paid at certain time

Question 13

Policy loan

Answer 13

this is guaranteed, pays interest, cash value earns interest

Question 14

Permanent LI square

Answer 14

Pure LI protection is decreasing and paid only at death

Question 15

Permanent LI square

Answer 15

Cash value is increasing and paid at death OR life