Exam (elaborations) FINANCE 390 FINANCE 341 Sample Final Exam with answers

Exam (elaborations) FINANCE 390 FINANCE 341 Sample Final Exam with answers All of the following are advantages of life insurance except: a. Guaranteed payout b. Proceeds not probated c. Cost of coverage reduces disposable income d. Generally not subject to federal income tax 2. Which of the following is not a standard provision in a typical life insurance policy? a. a provision explaining the insured’s right to assign the policy b. a provision permitting the insurer to cancel the policy at any time if the insured individual changes jobs c. a provision describing alternative settlement options that may be elected for payment of death proceeds d. a provision explaining the policyowner’s right to borrow cash values 3. The three principle factors in premium calculations are: a. agent commissions, mortality, and expense ratios b. agent commissions, interest rates, and lapse rates c. interest rates, agent commissions, and mortality d. interest rates, morbidity, and company dividends 4. Insurance companies base their mortality assumptions on: a. the experience of large groups of people b. published mortality results of other large life insurance companies c. federally mandated mortality tables published by the Treasury Department d. the individual assumptions made by actuaries employed by the company Chapter 2: How to Estimate the Insurance Need 1. All of the following are primary life insurance planning areas, except: a. income replacement and family needs b. portfolio value and allocation of assets between debt and equity instruments c. business insurance needs analysis d. estate preservation and liquidity needs FINANCE 390 FINANCE 341 Sample Final Exam with answers 2. The “multiples-of-salary” method of estimating the amount of a family’s insurance needs is a. a rule of thumb method that determines insurance need by looking at the number of children in the family b. a method that was repealed by the Taxpayer Relief Act of 1997 c. a method combining a simple rule of thumb method with elements of income replacement and needs analysis d. a method that can be used only by individuals who are properly licensed with the FAA 3. The income replacement approach to determining a family’s insurance needs is based primarily on? a. the earnings growth rate of long-term U.S. Treasury securities b. regulations issued by the Department of Health and Human Services c. the current balance in the accumulated adjustment account d. the human life value concept 4. A conceptually sound approach to valuing key employees should a. Ignore the financial consequences of the timing of lost employee contributions b. Discount for trends in employee contributions c. Recognize that most, if not all, the value of key employe contributions will be recovered over time through change or adapting Chapter 3: How to Determine the Right Company 1. The most important factors that should be considered in choosing an insurance company include all of the following, except: a. the quality of the company’s policy illustrations b. the company’s financial stability c. the company’s reputation for service and fairness to policyholders d. the availability of products that meet the needs of the customer 2. Which of the following items should not be taken into account when performing a “due care” analysis? a. assessing the general characteristics and financial information of the company b. reviewing profitability, leverage and liquidity tests c. looking at the company’s ratings by the major rating services d. inspecting the company’s marketing materials 3. Life insurance companies with better mortality experience than other companies tend to have a. higher underwriting standards b. nonqualified deferred compensation plans for general agents c. a mutual holding company structure d. a 401(k) matching program for employees 4. Mutual life insurance companies have all of the following advantages except: a. No conflict of interest between shareholders and policyholders b. Lower profit goals than stock companies c. Long-term management view d. Limited ability to raise capital through stock issuance Chapter 4: How to Determine the Right Policy 1. For families with young children or couples with a living standard that is relatively high for their income, the amount of insurance needed will be high. As a result, a. the priority should be to provide the most possible permanent insurance b. the priority should be to provide adequate death protection c. the couple should be encouraged to save for several years until they can afford to purchase permanent insurance d. a combination of term and permanent insurance should always be recommended regardless of how little the client can afford 2. The two policy comparison methods that compute the rates of return, or the prices of protection, for all years, or any subset of years the policies may be in force were developed by: a. Linton and Baldwin b. the National Association of Insurance Commissioners c. Joseph Belth d. A.M. Best 3. The easiest policy comparison method to understand and use is the a. interest-adjusted net payment cost index b. traditional net cost method c. Baldwin method d. equal outlay method 4. Financial services professionals should examine policy illustrations with emphasis on: a. Surrender charges b. Cash value projections c. Policy loans and dividends d. All of the above Chapter 8: Annuities 1. Which of the following features represents an advantage of an annuity over a mutual fund investment? a. greater participation in favorable market performance b. stepped up basis in the hands of a beneficiary after the owner's death c. tax deferred growth d. lower fees for acquisition 2. If the annuitant dies after annuity benefit payments have started under a “pure life annuity” settlement option a. the payments cease b. the payments continue to his beneficiary for at least five years c. the payments continue to his beneficiary for at least ten years d. the payments cease during the Social Security blackout period but begin again when the beneficiary reaches age 65 3. A fixed annuity might be a good choice when a. safety of principal is paramount b. a guaranteed interest rate is wanted c. a conservative complement to other investment vehicles is desired d. all of the above 4. The process of selecting the best fixed annuity includes a. Comparing costs and features b. Comparing total outlay with total annuity payments c. Comparing relative financial strengths of companies d. All of the above Chapter 10: Group Life Insurance 1. Group life insurance is a welfare benefit plan. As a result: a. coverage may not exceed $50,000 per employee b. an equal amount of coverage must be provided to all employees c. it is subject to securities regulations d. it is subject to ERISA 2. Approximately what percentage of all life insurance in force in the United States is on a group basis? a. 15% b. 30% c. 40% d. 55% 3. Which one of the following is not an advantage of group term life insurance? a. It provides insurance at standard rates for those who might otherwise be insurable at only an increased premium. b. It is can be used as a standard investment option under the employer's 401(k) plan. c. It provides a death benefit to employees at a relatively low cost. d. It typically enables terminated employees to convert to individual policies without submitting evidence of insurability. 4. An employee does not have to report any income with respect to what amount of group term life insurance coverage (assuming the plan is not discriminatory)? a. zero b. $50,000 c. $100,000 d. $125,500 Chapter 13: Ordinary Level-Premium Whole Life Insurance 1. In which of the following situations would a level-premium whole life insurance policy be appropriate? a. To provide a fund needed only if death should occur within a short period of time after purchase b. When the policyowner desires to control the investments of the cash value of the policy c. When the policyowner desires to vary the death benefit depending upon life circumstances d. To provide funds for the continuation of a business through a “buy-sell” agreemen