CHAPTER 12 PROBLEMS
TRUE-FALSE
_____1.
Consumer awareness of life insurance has changed very little over the years.
_____2.
There is a rule of thumb that a good target is life insurance totaling nine to ten times your
annual income.
A participating policy has somewhat lower premiums than a nonparticipating policy.
_____3.
_____4.
_____5.
A term insurance policy pays a benefit only if you die during the period that the policy
covers.
Universal life insurance is the answer to the “buy term and invest the difference”
philosophy.
MULTIPLE CHOICE
_____6.
One of the following is not a method of estimating your life insurance requirements.
a. DINK
b. Family need
c. Hard
d. Easy
_____7.
Which life insurance provision allows you not to forfeit all accrued benefits?
a. Double indemnity
b. Nonforfeiture clause
c. Incontestability clause
d. Suicide clause
_____8.
Which life insurance provision permits the owner of the policy to borrow any amount up
to the cash value of the policy?
a. Double indemnity
b. Nonforfeiture clause
c. Incontestability clause
d. Policy loan provision
9.
10.
Which is a method of evaluating the cost of life insurance by taking into account the time
value of money?
a. Interest adjusted index
b. Consumer price index
c. Insurance index
d. Cash value index
A settlement option that provides for payment of life-insurance proceeds in equal periodic
installments for a specified number of years after your death is called
a. lump-sum payment.
b. limited installment payment.
c. life income option.
d. interest-principal payment option.
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11. Calculating the Amount of Life Insurance Needed Using the Easy Method. You are the wage earner in a “typical
family,” with $40,000 gross annual income. Use the easy method to determine how much life insurance you should
carry.
12. Estimating Life Insurance Needs Using the DINK Method. You and your spouse are in good health and have
reasonably secure jobs. Each of you makes about $28,000 annually. You own a home with an $80,000 mortgage,
and you owe $10,000 on car loans, $5,000 in personal debt, and $3,000 in credit card loans. You have no other debt.
You have no plans to increase the size of your family in the near future. Estimate your total insurance needs using
the DINK method.
13. Using the “Nonworking” Spouse Method to Determine Life Insurance Needs. Tim and Allison are married and have
two children, ages 4 and 7. Allison is a “nonworking” spouse who devotes all of her time to household activities.
Estimate how much life insurance Tim and Allison should carry.
To estimate how much insurance Tim and Allison should carry, multiply the number of years before their youngest
child, 4, reaches age 18 by $10,000. Insurance needed = 14  $10,000 or $140,000
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