Fundamental of Insurance & Risk Test Bank Solution Manual Latest Update 2024 ( Already Passed)

Fundamental of Insurance & Risk Test Bank Solution Manual Latest Update 2024 ( Already Passed) Which of the following types of families is likely to have the least need for a large amount of life insurance? A) blended family B) traditional family C) single person family D) sandwich family - Answers c 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. - Answers c All of the following information is needed to caclulate a person's human life value Except A) the person's average annual earnings over his or her productive lifetime. B) the person's estimated Social Security Benefits after retirement. C) the person's cost of self-maintenance. D) the number of years from the person's present age to the expected retirement age. - Answers b 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. - Answers b 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. - Answers d Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are) true? I. it invoolves an analysis of various family needs which must be met if a family bread winner dies. II. It 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 or II - Answers a 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 - Answers c What is the length of the readjustment period which is considered when the needs approach is used to determine the amount of life insurance to own? - Answers 1 to 2 years Under the needs approach, when is the dependency period of a surviving spouse assumed to end - Answers when the youngest child reaches 18 The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the - Answers blackout period which of the following statements about the capital retention approach for determinig life insurance needs is (are) true? I. it assumes that life insurance proceeds will be liquidated to provide income to survivors. II. it requires the preparation of a personal balance sheet. A) I only B) II only C) Both I and II D) Neither I or II - Answers b When the capital retention approach is used to determine how much life insurance to purchase, all of the following are subtracted from total assets to calculate the capital available to produce income Except A) investments in stocks and bonds B) non-income producing capital such as autos and the value of the home. C) the amount of money needed to payoff the mortgage. D) auto loans and credit card debt - Answers a disadvantages of the capital retention approach include which of the following I. Assets are often liquidated too quickly. II. It underestimates the amount of life insurance A) I only B) II only C) Both I and II D) Neither I or II - Answers d Tom and Nancy Boyle provide financial support for their two children. In addition, they provide financial support of Tom's aged father and Nancy's aged mother. The Boyle family can be described as a - Answers sandwiched family Julian, age 45, would like to determine how much life insurance to purchase using the human life value approach. He assumes his average annual earnings over the next 20 years will be $40,000. Of this amount, $20,000 is available annually for the support of his family. Julian will generate this income for 20 more years and he believes that 5% is the appropriate interest (discount) rate. The present value of one dollar payable for 20 years at a discount rate of 5% is $12.46. What is Julian's human life value? A) 184,600 B) 249,200 C) 360,800 D) 400,000 - Answers b Jessica is an agent for LMN life Insurance Company. She met with Brad, who was interested in purchasing life insurance. Jessica explained the various uses of life insurance, including income for Brad's wife during the 1 or 2 year period following Brad's death. This period is known as - Answers readjustment period. Sarah is using the needs approach to determine how much life insurance to buy. Her cash needs are $30,000; her income needs are $100,000. Sarah has the following assets: $20,000 in bank accounts, 30,000 in retirement plans, and 40,000 in investment accounts. Sarah owns no individual life insurance. She is covered by a $50,000 group life insuracne policy through her employer. Based on this information how much additional life insurance should Sarah purchase? - Answers $130,000 Richard is using the capital retention approach to determine how much life insurance to purchase. Richard would like to provide $35,000 per year to his family, forever, if he dies. The assets that he has today will provide $25,000 in annual income without the liquidation of these assets. If life insurance proceeds can be invested to earn a 5 percent annual return, how much life insurance should Richard purchase to fund the additional income needed to meet the $35,000 annual income goal? - Answers $200,000 Bill is attempting to determine how much life insurance to purchase. He has two dependent children and his wife does not work outside of the home. An advisor suggested that Bill should consider Social Security benefits when doing his life insurance planning. One concern in this regard is the period after Social Security benefits to a widow terminate until they resume again. This period is called the - Answers blackout period When using the needs approach, several "special needs" should be considered. One special need is money to cover unexpected events, such as major car repairs, dental bills, or home repairs. Money set aside for this purpose is called a(n) A) estate clearance fund. B) emergency fund. C) readjustment period fund. D) mortgage redemption fund - Answers b Most family heads need substantial amounts of life insurance. However, with limited income, money spent on life insurance reduces the amount of discretionary income available for other high-priority needs. What an insured person gives up when he or she purchases life insurance instead of using the premium dollars for other purposes is called the - Answers opportunity cost of buying life insurance Which of the following statements about yearly renewable term insurance is (are) true? I. It requires evidence of insurability for renewal. II. It is most appropriate when an insured needs lifetime protection. A) I only B) II only C) both I and II D) neither I nor II - Answers Neither I or II what happens to the premiums for yearly renewable term insurance as insured gets older? A) They increase at an increasing rate. B) They increase at a decreasing rate. C) They decrease at a constant rate. D) They remain level. - Answers a 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 cash value that is refunded when coverage ceases. - Answers d All of the following statements about the conversion of a term policy are true EXCEPT A) Under an attained age conversion, the premium is based on the insured's attained age at the time of conversion. B) Under an original age conversion, the policyowner must pay a financial adjustment in addition to the premium for the new policy. C) Most insurers require original age conversion to take place within a specified period (5 years, for example) of the issue of the term policy. D) Evidence of insurability is required before a conversion is permitted. - Answers d ) Which of the following statements about a decreasing term insurance policy is true? A) The face amount of the policy decreases during the policy period, and the premium increases. B) The face amount of the policy decreases during the policy period, but the premium remains level. C) The premium decreases during the policy period, but the face amount remains constant. D) Both the premium and the face amount of the policy decrease gradually over the policy period. - Answers b The purchase of term insurance is justified by which of the following circumstances? I. The insured wants to save money through the policy for a specific need. II. The insured has a temporary need for life insurance protection. A) I only B) II only C) both I and II D) neither I nor II - Answers b a legal reserve in life insurance is a result of A) premium taxes payable by life insurance companies being postponed during the early policy years. B) dividends being paid to policyowners. C) inadequate premiums in the early policy years being subsidized by investment earnings. D) excess premiums in the early policy years being invested at compound interest. - Answers d the net amount at risk for an ordinary life insurance policy is the difference between the A) present value of future benefits and the present value of future premiums. B) face amount of the policy and the total premiums that have been paid. C) face amount of the policy and the legal reserve. D) annual premium and the annual policyholder dividend. - Answers c Which of the following statements about life insurance cash values is (are) true? I. Cash values are a result of the level premium method of purchasing life insurance. II. The cash value of a policy must always exceed the policy's legal reserve. A) I only B) II only C) both I and II D) neither I nor II - Answers a 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. - Answers b Which of the following statements about limited-payment life insurance is true? A) It is a form of term insurance. B) It matures at the end of the premium-payment period. C) The premium decreases each year during the premium-payment period. D) Its use may be appropriate if a person wants paid-up life insurance during retirement. - Answers d Which of the following statements about endowment insurance policies is (are) true? I. The face amount is paid if the insured dies during the policy period or at the end of the policy period if the insured is still alive. II. The use of endowment insurance has increased in recent years because of its favorable tax treatment. A) I only B) II only C) both I and II D) neither I nor II - Answers a All of the following statements about variable life insurance are true EXCEPT A) The premium is level and guaranteed not to increase.