Module 12

Question 1

This is based on the present value of the family’s share of the deceased breadwinner’s future earnings.

Answer 1

Human life value approach

Question 2

Family financial needs are looked at in advance to prepare for if the head of household should die.

Answer 2

Needs approach

Question 3

This provides temporary protection. Yearly premium rates rise as an individual gets older.

Answer 3

Term insurance

Question 4

The monetary difference between the death benefit paid by a permanent life insurance policy and the savings element.

Answer 4

Net amount of risk in life policies

Question 5

This is the value of consumer equity in the life insurance policy at any time.

Answer 5

Cash value

Question 6

This protects policyholders with limited income. It provides temporary, low-cost protection and can establish future insurability if purchased with a conversion option.

Answer 6

Uses of term life insurance

Question 7

Individuals can be underinsured due to relatively high costs.

Answer 7

Limitations of ordinary whole life insurance

Question 8

A fixed-premium policy in which the death benefit and cash surrender values vary according to the experience of the variable selection of investments.

Answer 8

Variable life insurance

Question 9

A flexible premium policy that provides lifetime protection with unbundled components of mortality, expenses, and interest.

Answer 9

Universal life insurance

Question 10

It provides the flexible premiums of a universal life policy with the variable selection of investments by the policy owner.

Answer 10

Variable universal life (VUL) insurance

Question 11

This enables the policy holder to receive cash advances against the death benefit in the case of being diagnosed with a terminal illness.

Answer 11

Accelerated death benefits

Question 12

Ways the payout of the proceeds can occur such as in a lump sum, on an installment basis.

Answer 12

Settlement options in life insurance

Question 13

This transfers life insurance ownership, which may be done for estate considerations.

Answer 13

Assignment of life policies

Question 14

A variation of a universal life insurance with a minimum interest rate guarantee and an indexed component that can increase equity in the policy

Answer 14

Indexed universal life insurance

Question 15

The employer pays all the premium for coverage in a set formula, minimizing adverse selection to the carrier.

Answer 15

Non-contributory group life insurance

Question 16

Employees pay part or all the premium costs. This implies voluntary participation. There may be adverse selection against the insurer without stringent underwriting.

Answer 16

Contributory group life insurance

Question 17

Internal Revenue Code Section 79 allows employers to provide employees up to _____ in tax-free group term life insurance, provided the employer plan meets certain requirements.

A. 3 x annual salary
B. $60,000
C. $30,000
D. $40,000
E. $50,000

Answer 17

E. $50,000

Question 18

Limitations of the human life value approach to estimating life insurance amounts include all of the following, EXCEPT:

A. All the sources of income after a person’s death are not considered.

B. The effects of inflation on earnings and expenses are ignored.

C. Assuming a higher discount rate can substantially inflate the human life value, making coverage unaffordable for most people.

D. The amount of income allocated to the family is a critical factor in determining the human life value, and this amount can quickly change.

E. Work earnings and expenses are assumed to remain constant and employee benefits are ignored.

Answer 18

C. Assuming a higher discount rate can substantially inflate the human life value, making coverage unaffordable for most people.

Question 19

Which of the following describe term insurance?

i. It provides temporary protection.
ii. Policies are renewable.
iii. Policies are convertible.
iv. Term insurance has a savings component and builds cash value.

A. None of the above
B. iii and iv only
C. i, ii, and iii only
D. i and ii only
E. All of the above

Answer 19

C. i, ii, and iii only

Question 20

Which of the following is true regarding variable life insurance?

A. It’s permanent whole life contract with a flexible premium.

B. There’s a minimum guaranteed cash value as guaranteed in the prospectus.

C. There’s a risk the minimum death benefit will be less than the original face amount if the investment experience of the account is poor.

D. It unbundles the protection component and the savings component.

E. The premium is level and is guaranteed not to increase.

Answer 20

E. The premium is level and is guaranteed not to increase.

Question 21

Essential features of group insurance include:

i. Use of group selection under which an entire group is insured without medical examination or other evidence of individual insurability.
ii. Premiums on a group insurance plan generally are subject to experience rating.
iii. Group insurance creates an individual contract for each member which outlines all conditions.
iv. Administration tends to be more complex and expensive due to covering so many lives.

A. i and ii only
B. iii and iv only
C. All of the above
D. iii only
E. i only

Answer 21

A. i and ii only