Question 1

Donald and Charlene are married and do not have any children.Each plans to continue to work after the other one dies.Which method are they using to determine their life insurance needs?

Accepted Answer

Donald and Charlene are using the dual income, no kids method to determine their life insurance needs as they do not have any dependents and plan to keep working after the other one's death. This method focuses on replacing the income of the deceased spouse rather than considering the needs of dependents.

Question 2

Another name for permanent life insurance is

Accepted Answer

Permanent life insurance is also known as whole life insurance because it covers the insured for their entire lifetime as long as premiums are paid. Option B is incorrect as renewable term insurance is a form of term insurance that can be renewed for another term without medical underwriting. Option C is incorrect as convertible term insurance allows the policyholder to convert their term policy into a permanent policy. Option D is incorrect as decreasing term insurance covers the policyholder for a decreased amount of coverage over time. Option E is incorrect as credit life insurance is a type of insurance that pays off a borrower's outstanding debts in the event of their death.

Question 3

Most people buy life insurance to

Accepted Answer

Although benefits may be used for several of the answers, most people buy life insurance to protect their dependents.

Question 4

Which of the following is NOT a type of permanent life insurance?

Accepted Answer

Decreasing term life insurance is not a type of permanent life insurance. It is a type of term life insurance where the death benefit decreases over time. The other options (A, B, C, and D) are all types of permanent life insurance, which provide coverage for the entire lifetime of the insured as long as the premiums are paid.

Question 5

An investment in an annuity is the same as an investment in a certificate of deposit.

Accepted Answer

An annuity is a contract between an individual and an insurance company, where the individual invests a sum of money in exchange for a series of regular, periodic payments. A certificate of deposit (CD) is a type of savings account that pays a fixed interest rate over a specific term. While both products offer a fixed rate of return, they operate differently and have different features.

Question 6

If you want to purchase term insurance,you will receive all of the following except

Accepted Answer

Term insurance does not have a cash value component. It provides temporary insurance coverage for a specified term, after which the policy expires, and the coverage ends. The purpose of term insurance is to offer a death benefit during the period it covers, such as 1, 5, 10, or 20 years, in case the insured person dies within that timeframe. But unlike other types of life insurance policies, it does not accumulate any cash or investment value over time.

Question 7

Todd plans to purchase a life insurance policy from a stock life insurance company.What kind of policy is he planning to purchase?

Accepted Answer

Stock life insurance companies typically offer nonparticipating policies, meaning policyholders do not receive dividends from the company's profits.

Question 8

Jeff and Erica have two children.They plan to purchase life insurance using this formula: (18 - Youngest child's age)× $10,000.Which method are they using to determine their life insurance needs?

Accepted Answer

The formula used by Jeff and Erica aligns with the nonworking spouse method, which calculates life insurance needs based on the youngest child's age to cover the years until they reach adulthood.

Question 9

Jeanne wants to purchase a life insurance policy with guaranteed premiums.What kind of policy would she want to purchase?

Accepted Answer

Nonparticipating policies have guaranteed premiums and do not pay dividends.

Question 10

Judy and James have a 4-year-old child.They plan to purchase life insurance using this formula: Current income × 7 × 70%.Which method are they using to determine their life insurance needs?

Accepted Answer

The Easy method is a simplified way to estimate life insurance needs, often using the formula: Current income × 7 × 70%.

Question 11

A person who is named to receive the benefits from an insurance policy is a(n)

Accepted Answer

A beneficiary is a person who is designated to receive the benefits or proceeds from an insurance policy. They are typically named by the policyholder when the policy is set up.

Question 12

Francisco and Maria have three children and want to complete a detailed worksheet to determine the amount of life insurance they need to purchase.Which method are they using to determine their life insurance needs?

Accepted Answer

Francisco and Maria are using the family need method, which takes into account their current and future financial needs, such as paying off a mortgage and providing for their children's education, as well as their current savings and existing life insurance policies. This method is more comprehensive and tailored to their specific situation than the easy or nonworking spouse methods, and more applicable than the dual income, no kids method. The formal calculation method is also a possibility, but it requires more complex calculations and input from a financial advisor.

Question 13

Which of the following households most likely has the greatest need for life insurance?

Accepted Answer

A household with children has the highest need for life insurance as they have dependents who may suffer financial hardship if the breadwinner(s) were to pass away. The other options may not have anyone who is financially dependent on them or may have other means of financial support.

Question 14

Which of the following is NOT temporary insurance?

Accepted Answer

Whole life insurance is a permanent form of life insurance that provides coverage for the entirety of the policyholder's lifetime, as long as the premiums are paid. This is not a form of temporary insurance. The other options listed are all forms of temporary insurance, providing coverage for a specific period of time. The best choice would depend on the specific needs of the policyholder, such as the length of time they need coverage, the amount of coverage they require, and their overall budget.

Question 15

About ___ of the U.S.life insurance companies are stock companies.

Accepted Answer

The answer of About ___ of the U.S.life insurance companies...

Question 16

An administrative fee of $150 per year may be deducted to cover recordkeeping and other administrative expenses related to a variable annuity.

Accepted Answer

The fee may be $25 or $30 per year or a percentage of your account value (usually 0.15% per year).

Question 17

Annuities are most beneficial for individuals who expect to live only a short time.

Accepted Answer

Annuities are most beneficial for those who expect to live longer than average.

Question 18

Another name for temporary life insurance is

Accepted Answer

Temporary life insurance is often referred to as term life insurance. This type of insurance provides coverage for a specific period of time, typically ranging from 1-30 years, and does not accumulate cash value over time like other types of life insurance.

Question 19

You want to purchase a life insurance policy that pays a dividend.What kind of policy would you want to purchase?

Accepted Answer

A participating policy is a type of life insurance policy that pays dividends to policyholders based on the company's financial performance. The dividends can be used to reduce premiums or increase the policy's cash value. A nonparticipating policy does not pay dividends, while a mutual policy is a type of participating policy offered by mutual insurance companies. A stock policy is a type of insurance policy offered by stock insurance companies, which are owned by shareholders and do not pay dividends to policyholders. A dividend policy is not a specific type of life insurance policy. Therefore, the best choice would be a participating policy.

Question 20

Which of the following is NOT a type of permanent insurance?

Accepted Answer

Term life is not a type of permanent insurance because it provides coverage for a specific period of time, typically 10, 20, or 30 years. Permanent insurance, on the other hand, provides coverage for the entire life of the insured.

Quiz 10: Financial Planning With Life Insurance