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Life Insurance Mock Exam 2 Questions with Detailed
Verified Answers
Dara and Susan have met with their agent and shared their financial situation. They have a
mortgage of $250,000 and think their funeral expenses will be $20,000. They also shared the
following information about their lifestyle expenses:
Expense
Monthly Amount
Mortgage (principal and interest)
$1,625
Cottage insurance and maintenance
$800
Food and entertainment $750
Spousal support for Dara
$425
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Utilities, phone, and internet
$320
Personal care
$200
Using the above information and the capital drawdown method, recommend the amount of
coverage and coverage type that Susan will need by determining the spousal support Dara will need
for 25 years. Be sure to include their mortgage and financial expenses in your assessment.
a) Total death benefit of $277,000 with a permanent coverage of $127,000 and a term policy of
$100,000
b) Total death benefit of $377,000 with a permanent coverage of $27,000 and a term Ans: ✓ ✓ ✓
(correct)Total death benefit of $397,000 with a permanent coverage of $20,000 and a term policy of
$377,000
Rationale:
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Using the capital drawdown method, Dara's spousal support need is $127,500 ($425 × 12 × 25).
Both the funeral expenses and the mortgage balance can be added to the spousal support to total
an insurance need of $397,000. While the funeral expenses are a permanent need, the other
liabilities can be covered in a term recommendation. (Refer to Section 10.3)
Judith is 30 years old and completed her PhD in Economics a few months ago. She is starting her
career as a university professor. She is still paying off her student loans and just took out a mortgage
loan to buy a house with her husband. In addition to repaying her debts, Judith has started
investing for her retirement, which does not leave her with much disposable income for life
insurance. The couple wants to have children in the next few years, and Judith wants to make sure
that her family does not suffer financially if she were to die. She also wants to be able to leave a
large charitable donation to the university to help fund scholarships after her death.
Considering Judith's desires and current situation, what type of life insurance would be the best
option among the following?
a) Non-renewable term insurance
b) Renewable and convertible term insurance
c) Renewable term insurance
d) Whole life insuranc Ans: ✓ ✓ ✓ (wrong) Whole life insurance
Rationale:
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The fact that Judith wants to make a large donation to the university once she dies suggests that
she may need permanent insurance that, unlike term insurance which ends at a certain age, will last
for her lifetime. However, due to her current budget constraints, buying permanent insurance is
probably too expensive for her at the moment. Term insurance would, therefore, be a better fit for
Judith until she has more disposable income to put towards life insurance.
To ensure that Judith's life insurance coverage lasts for her entire lifetime, in addition to being
renewable, the life insurance policy must be convertible. This way, she will be able to convert her
term insurance into permanent insurance when she can afford to, and once the need to provide for
her family has passed, the insurance can be used to make a charitable donation. (Refer to Section
2.5)
Nathan's life insurance agent has used the income replacement approach to quickly determine how
much life insurance would be needed to replace Nathan's current income indefinitely. While he
appreciates the simplicity of this approach, Nathan is worried that the analysis does not take into
consideration the probability that his income will increase over time.
If Nathan's life insurance agent takes into consideration his increasing income, what will the impact
be on his income replacement analysis?
a) The amount of life insurance needed will remain the same.
b) The rate of return used in the calculation will be higher.
c) The amount of income to replace will be doubled.
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Life Insurance Mock Exam 2 Questions with Detailed
Verified Answers
Dara and Susan have met with their agent and shared their financial situation. They have a
mortgage of $250,000 and think their funeral expenses will be $20,000. They also shared the
following information about their lifestyle expenses:
Expense
Monthly Amount
Mortgage (principal and interest)
$1,625
Cottage insurance and maintenance
$800
Food and entertainment $750
Spousal support for Dara
$425
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Utilities, phone, and internet
$320
Personal care
$200
Using the above information and the capital drawdown method, recommend the amount of
coverage and coverage type that Susan will need by determining the spousal support Dara will need
for 25 years. Be sure to include their mortgage and financial expenses in your assessment.
a) Total death benefit of $277,000 with a permanent coverage of $127,000 and a term policy of
$100,000
b) Total death benefit of $377,000 with a permanent coverage of $27,000 and a term Ans: ✓ ✓ ✓
(correct)Total death benefit of $397,000 with a permanent coverage of $20,000 and a term policy of
$377,000
Rationale:
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,Click here for more: Scholars nexus
Using the capital drawdown method, Dara's spousal support need is $127,500 ($425 × 12 × 25).
Both the funeral expenses and the mortgage balance can be added to the spousal support to total
an insurance need of $397,000. While the funeral expenses are a permanent need, the other
liabilities can be covered in a term recommendation. (Refer to Section 10.3)
Judith is 30 years old and completed her PhD in Economics a few months ago. She is starting her
career as a university professor. She is still paying off her student loans and just took out a mortgage
loan to buy a house with her husband. In addition to repaying her debts, Judith has started
investing for her retirement, which does not leave her with much disposable income for life
insurance. The couple wants to have children in the next few years, and Judith wants to make sure
that her family does not suffer financially if she were to die. She also wants to be able to leave a
large charitable donation to the university to help fund scholarships after her death.
Considering Judith's desires and current situation, what type of life insurance would be the best
option among the following?
a) Non-renewable term insurance
b) Renewable and convertible term insurance
c) Renewable term insurance
d) Whole life insuranc Ans: ✓ ✓ ✓ (wrong) Whole life insurance
Rationale:
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, Click here for more: Scholars nexus
The fact that Judith wants to make a large donation to the university once she dies suggests that
she may need permanent insurance that, unlike term insurance which ends at a certain age, will last
for her lifetime. However, due to her current budget constraints, buying permanent insurance is
probably too expensive for her at the moment. Term insurance would, therefore, be a better fit for
Judith until she has more disposable income to put towards life insurance.
To ensure that Judith's life insurance coverage lasts for her entire lifetime, in addition to being
renewable, the life insurance policy must be convertible. This way, she will be able to convert her
term insurance into permanent insurance when she can afford to, and once the need to provide for
her family has passed, the insurance can be used to make a charitable donation. (Refer to Section
2.5)
Nathan's life insurance agent has used the income replacement approach to quickly determine how
much life insurance would be needed to replace Nathan's current income indefinitely. While he
appreciates the simplicity of this approach, Nathan is worried that the analysis does not take into
consideration the probability that his income will increase over time.
If Nathan's life insurance agent takes into consideration his increasing income, what will the impact
be on his income replacement analysis?
a) The amount of life insurance needed will remain the same.
b) The rate of return used in the calculation will be higher.
c) The amount of income to replace will be doubled.
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