CLU HS 323 Chp. 1 Quiz | Questions with 100% Correct Answers | Latest Update | Verified

CLU HS 323 Chp. 1 Quiz | Questions with 100% Correct Answers | Latest Update | Verified Life Insurance is primarily concerned with which of the following aspects of the human life value? (A) The religious value (B) The social value (C) The economic value (D) The moral Value - (C) The economic value A Human Life may have an economic value that can logically serve as the basis for life insurance in which of the following situations? I - The individual is age 23 and unmarried and has no children II- The individual has only one dependent, an aged father III - The individual has no dependents but makes sizable periodic gifts to a favorite charity (A) II Only (B) I & III only (C) II and III only (D) I, II, III - (D) I, II, III Which of the following is an element of the technically accurate method of calculating the economic value of an individual's human life? (A) Deduct the cost of the individual's self-maintenance, life insurance premiums, and personal income taxes. (B) Discount for the contingency of the individual's death, but not for the contingencies of his or her disability or unemployment. (C) Reduce the residual income of the individual to its future value. (D) Calculate the size of a fund whose investment earnings will be sufficient to replace the dependents' share of the individual's income. - (A) Deduct the cost of the individual's self-maintenance, life insurance premiums, and personal income taxes. All the following are steps in the five-step process of estimating a person's economic value for purposes of life insurance, EXCEPT: (A) Estimate the person's average annual earnings from personal efforts during the remainder of the person's working years. (B) Deduct the cost of the person's self-maintenance, life insurance premiums, and income taxes. (C) Select a reasonable rate of interest to use in discounting future earnings. (D) Determine the remaining number of years in the person's life expectancy. (E) Multiply the person's net earnings by the present value of $1.00 per year, based on the selected interest rate and the remaining number of years until the person's planned retirement date. - (D) Determine the remaining number of years in the person's life expectancy. Assume that a 40-year old man who plans to retire at age 60 will have gross average annual earnings of about $90,000 during the next 20 years. Assume also that about two-thirds of the income will go for the support of the man's dependents. Assume further that the present value of $1.00 per year for 20 years at a 6% rate of interest is $11.47. Based on the information, which of the following is the approximate economic value of the man's life? (A) $344,000 (B) $688,000 (C) $1,032,000 (D) $1,200,000 - (B) $688,000 Which of the following statements concerning the economic value of the typical human life is (are) correct? I - It tends to diminish with the passage of time II - It is at its peak when the individual's annual earnings reach their peak (A) I only (B) II only (C) Both I and II (D) Neither I nor II - (A) I only. I - It tends to diminish with the passage of time Which of the following statements best describes the human life value approach? (A) A client should have life insurance equal to the capitalized value of his net earnings. (B) A client should have life insurance equal to his family's needs at his death (C) A client should have life insurance adequate to provide perpetual income for dependents. (D) A client should have life insurance so a survivor will not outlive the income stream - (A) A client should have life insurance equal to the capitalized value of his net earnings. Income payments to a surviving spouse can consist solely of investment earnings on a capital sum or a combination of investment earnings and a gradual liquidation of the capital sum. Which of the following is (are) among the advantages of the former approach? I - The surviving spouse will not outlive the income. II - The capital sum needed is smaller than in the latter approach (A) I only (B) II only (C) Both I and II (D) Neither I nor II - (A) I only I - The surviving spouse will not outlive the income. When the liquidating approach is used, which of the following ways can be used to eliminate the problem of the beneficiary outliving the money? I - Benefit payments can include principal and investment income. II - Life annuities can be purchased for the beneficiary. (A) I only (B) II only (C) Both I and II (D) Neither I nor II - (B) II only II - Life annuities can be purchased for the beneficiary. A client has determined that he should provide benefits for a surviving spouse in the amount of $80,000 annually. The client is in the 25% income tax bracket. Under the capital needs analysis, what capital fund is required if the fund can realistically be invested to earn a 4% return after taxes? (A) $2,000,000 (B) $2,500,000 (C) $2,666,667 (D) $3,200,000 - (A) $2,000,000 Under the analysis-of-needs approach to determining how much life insurance should be carried, all of the following are components of the cleanup fund, EXCEPT: (A) Last illness expenses that are not covered by insurance (B) Income for the dependents for a 2-year readjustment period (C) The costs of estate administration (D) The balance due on unpaid notes, such as automobile loans - (B) Income for the dependents for a 2-year readjustment period Under the analysis-of-needs approach to determining how much life insurance should be carried, which of the following statements concerning the dependency period is correct? (A) It typically lats for one or two years. (B) It depends mainly on the age of the oldest child when the breadwinner dies. (C) It is sometimes referred to as the Social Security "Blackout" period (D) It depends in part on the type of education planned for the children - (D) It depends in part on the type of education planned for the children The ongoing income needs of the typical family following the death of the breadwinner include all the following, EXCEPT: (A) Income for a readjustment period (B) Income until the youngest child is self-sufficient (C) Income with which to create an emergency fund (D) Income for the surviving spouse after Social Security and pension benefits begin - (C) Income with which to create an emergency fund According to the analysis-of-needs approach, the type of life insurance carried will be most relevant to meeting which of the following needs? (A) The need for income during the dependency period (B) The need for a life income for the surviving spouse (C) The need for a retirement income for the insured (D) The need for an income during the readjustment period - (C) The need for a retirement income for the insured All of the following statements about trusts are true, EXCEPT: (A) A trust may own one or more life insurance policies (B) A trust may be the beneficiary of a life insurance policy (C) A trust is required to pass any life insurance proceeds through to individual beneficiaries within nine months. (D) A trust arrangement may be used to minimize the estate tax liability - (C) A trust is required to pass any life insurance proceeds through to individual beneficiaries within nine months. Which of the following statements about trusts is (are) true? I - Trusts provide for ownership of assets by the beneficiaries II - The trust is established by the trustee and managed by the trustor. III - A trust may be arranged specifically to pay life insurance premiums and receive the proceeds at death IV - In a trust, assets are managed for the benefit of the trustee (A) I & II only (B) I & III only (C) II & IV only (D) II, III, & IV only - (B) I & III only I - Trusts provide for ownership of assets by the beneficiaries III - A trust may be arranged specifically to pay life insurance premiums and receive the proceeds at death Which of the following statements about trust arrangements is true? (A) A trust company or bank trust department may be used as trustee to provide professional management the beneficiaries cannot outlive. (B) Disabled children who will never be able to manage their own finances cannot be beneficiaries under a trust arrangement (C) A spouse or children who cannot manage money would not be good candidates for trust beneficiaires (D) Trusts designed to extend family financial management are primarily used to distribute funds in a lump-sum after a specified number of years. - (A) A trust company or bank trust department may be used as trustee to provide professional management the beneficiaries cannot outlive. Which of the following statements about charitable giving is (are) true? I - Charitable gifts can be used to minimize estate taxes. II - A donor can give an existing life insurance policy to a charity, but the charity is not allowed to pay premiums. III - A donor can name the charity as beneficiary of an existing life insurance contract. IV - Life Insurance to fund family needs can free assets and other property to be given to charity. (A) I & II only (B) II & III only (C) I, II & III only (D) I, III, & IV only - (D) I, III, & IV only I - Charitable gifts can be used to minimize estate taxes. III - A donor can name the charity as beneficiary of an existing life insurance contract. IV - Life Insurance to fund family needs can free assets and other property to be given to charity. All of the following statements about charitable gifts are true, EXCEPT: (A) A charitable arrangement can benefit a charity, the donor's family, or both. (B) A charity can be the beneficiary but may not be the owner of a life insurance policy (C) In most states, insurable interest of a charity in the life of a donor is not an issue. (D) Life insurance and trust arrangements can be used to fund charitable gifts - (B) A charity can be the beneficiary but may not be the owner of a life insurance policy The prematurity values of a life insurance policy are generally most useful for which of the following purposes? (A) Transferring assets to younger generations (B) Nursing home care for the insured (C) Discreetly providing for confidential needs (D) Making large gifts to individuals at death - (B) Nursing home care for the insured Which of the following describe(s) a practical difficulty of insuring an indiviual for the full amount of his or her economic human life value? I - The economic value of the human life is usually far less than the minimum amount of insurance a typical life insurance company will issue II - The economic value of the human life is typically greatest during the years when the individual's ability to pay premiums is low. (A) I only (B) II only (C) Both I and II (D) Neither I nor II - (B) II only