Exam 13: Buying Life Insurance

David purchased a $100,000 participating whole life policy.The annual premium is $2,280.Projected dividends for the first 20 years are $15,624.The cash value after 20 years will be $35,260.If the premiums were invested at 5 percent for 20 years,the premiums would grow to $79,156.If the dividends were accumulated at 5 percent for 20 years,they would grow to be $24,400.The amount to which $1 deposited annually will accumulate in 20 years at 5 percent is $34.719.Based on this information,what is the net payment cost per thousand per year of David's policy over the 20-year period?

Which of the following statements describes how the net payment cost index differs from the surrender cost index?

To level a net single premium (NSP),the NSP is divided by

ABC Life Insurance Company is offering a new product.The product is a two-year term insurance policy funded by a single premium at the start of the first year.Death claims are paid at the end of the year in which death occurs.A portion of the appropriate mortality table is shown below.The first number is age,the second is the number alive at the start of the year,and the last number is the number dying during the year. 39 9,693,539 14,928 40 9,678,611 15,970 Using a 5.5 percent interest rate,the present value of $1 one year from today is .9479,and the present value of $1 two years from today is .8985.Assuming a 5.5 percent interest rate,what is the net single premium for a $1,000 two-year term policy issued at age 39?

The policy reserve at the end of any given policy year is called the

Which of the following statements about the surrender cost index for measuring the cost of life insurance is true?

Beth purchased a $50,000 nonparticipating whole life insurance policy.The annual premium was $1,278.The cash value of the policy after 10 years will be $13,740.The future value of $1 deposited at the start of the year for 10 years,assuming 5 percent interest,is $13.207.What is the traditional net cost of this policy,per thousand per year,over the first 10 years the policy is in force?

The net single premium for a life insurance policy is

Beth purchased a $50,000 nonparticipating whole life insurance policy.The annual premium was $1,278.The cash value of the policy after 10 years will be $13,740.The future value of $1 deposited at the start of the year for 10 years,assuming 5 percent interest,is $13.207.If the premiums were invested at 5 percent interest for 10 years,the premiums would grow to $16,878.55.Assuming 5 percent interest,what is the surrender cost of this policy,per thousand per year,over the first 10 years the policy is in force?

Marshall is interested in determining the cost per thousand of his life insurance policy.Which of the following will provide Marshall the most meaningful measure of the cost per thousand dollars per year of his life insurance?

Lisa does not want her life insurance policy included in her gross estate when she dies.Lisa can remove the life insurance policy from her estate if she does which of the following more than 3 years before she dies?

Why might the use of "grades" assigned by a life insurance company rating organization not be a reliable guide for consumers? I.There may be variations in grades given by different rating organizations. II.They ignore factors such as profitability and quality of investments.

Under the traditional net cost method,the net cost of life insurance for a given period (e.g.,20 years)is determined by which of the following formulas?

Which of the following statements about the use of interest-adjusted cost data for comparing life insurance policies is (are)true? I.Using interest-adjusted cost data provides a more accurate measure of the cost of life insurance than is provided if the time value of money is ignored. II.Its use is most appropriate in deciding between policies when the cost variation is very small.

Charles,age 65,owns a paid-up $250,000 whole life policy on his own life.Charles is doing some estate planning and would not like this policy to be included in his gross estate for federal estate tax purposes.Which of the following statements is (are)true regarding the tax treatment of this policy? I.Charles can avoid having the policy proceeds included in his gross estate by naming his estate the beneficiary. II.If Charles make an absolute assignment of the policy and dies more than three years later,the policy is not counted as part of his gross estate.

Which of the following statements is (are)true with regard to using interest-adjusted cost data when shopping for life insurance? I.Cost indexes apply to new policies and should not be used to determine whether to replace a policy. II.Cost indexes should only be used to compare similar plans of insurance.

Consumer experts typically recommend which of the following rules for purchasing life insurance? I.Avoid policies which pay dividends. II.Purchase life insurance equal to ten times your annual salary.

David purchased a $100,000 participating whole life policy.The annual premium is $2,280.Projected dividends for the first 20 years are $15,624.The cash value after 20 years will be $35,260.If the premiums were invested at 5 percent for 20 years,the premiums would grow to $79,156.If the dividends were accumulated at 5 percent for 20 years,they would grow to be $24,400.The amount to which $1 deposited annually will accumulate in 20 years at 5 percent is $34.719.Based on this information,what is the surrender cost per thousand per year of David's policy over the 20-year period?

Actuaries at Term Life Insurance Company calculated the net single premium per thousand for a five-year term policy for a man age 32 to be $5.04.To calculate the net level premium for this policy,the net single premium should be

Purposes of life insurance policy reserves include which of the following? I.Legal test of the insurer's solvency II.Formal recognition of the obligation to pay future claims