Chapter 16 - Fundamentals of Life Insurance
1) The human life value is defined as the
A) present value of a deceased breadwinner's future gross income.
B) future value of a deceased breadwinner's past earnings.
C) present value of the family's share of a deceased breadwinner's future earnings.
D) future value of the family's share of a deceased breadwinner's future earnings.
2) To calculate a human life value, it is necessary to deduct certain costs from a person's average
annual earnings. These costs include
A) funeral costs.
B) income taxes.
C) investment income.
D) pension benefits after retirement.
3) All of the following are defects which limit the usefulness of the human life value approach in
determining the correct amount of life insurance to purchase EXCEPT
A) The effects of inflation are ignored.
B) Other sources of income for survivors are ignored.
C) Earnings are assumed to remain constant.
D) Earnings during the individual's productive lifetime are ignored.
4) Which of the following statements about the needs approach for estimating the amount of life
insurance to purchase is (are) true?
I. It involves an analysis of various family needs which must be met if a family breadwinner
dies.
II. Its use is appropriate only if a person currently has no life insurance protection.
A) I only
B) II only
C) both I and II
D) neither I nor II
5) The purpose of an estate clearance fund is to pay all of the following EXCEPT
A) burial expenses.
B) estate administration expenses.
C) education costs.
D) installment debts.
6) The period during which a surviving spouse is ineligible for Social Security benefits is
referred to as the
A) emergency period.
B) readjustment period.
C) dependency period.
D) blackout period.
7) All of the following statements about term insurance are true EXCEPT
A) The insurance provides protection for a specified period of time.
B) Most policies can be renewed for additional periods without evidence of insurability.
C) Most policies can be converted to a permanent life insurance policy.
D) Most policies have a cash value that is refunded when coverage ceases.
8) All of the following statements about ordinary life insurance are true EXCEPT
A) Premiums are level throughout the policy period.
B) The face amount of the policy is paid if the insured lives to age 65.
C) There is a build-up of cash value that can be borrowed by the policyholder.
D) It offers the policyholder the flexibility to meet a wide variety of financial objectives.
9) All of the following statements about variable life insurance are true EXCEPT
A) The premium is level and guaranteed not to increase.
B) The death benefit varies according to investment experience.
C) The policyowner has the option of investing the cash value in several investment accounts.
D) Cash surrender values are guaranteed.
10) Which of the following statements about a variable universal life insurance policy is (are)
true?
I. There is a minimum guaranteed interest rate for the cash value.
II. The policyowner has a variety of investment options for the investment of premiums.
A) I only
B) II only
C) both I and II
D) neither I nor II