Exam 13: Buying Life Insurance

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?

Each of the following helps to reduce federal estate taxes EXCEPT

Lynn calculated the future value of the first twenty premiums she will pay under her nonparticipating whole life insurance policy.Then she subtracted the cash value after 20 years.Next,she divided this value by the future value annuity due factor for 20 years to arrive at an annual cost of insurance.Finally,she divided the annual cost by the number of thousands of dollars of life insurance purchased to arrive at the cost per thousand per year.Lynn calculated the

Which of the following statements is (are)true about the federal estate tax? I.The gross estate can be reduced by a number of deductions. II.If the person who died had any ownership interest in a life insurance policy at the time of death,the proceeds are included in the gross estate for federal estate tax purposes.

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.

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 surrender cost of this policy,per thousand per year,over the first 10 years the policy is in force?

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.

All of the following statements about the income tax treatment of individually-purchased life insurance are true EXCEPT

Paul is shopping for a life insurance policy.An agent asked Paul if he would like to purchase a participating policy.What is a "participating" policy?

The gross premium is defined as

Carl and Carol Williams,a married couple,are doing some estate planning.Upon his death,Carl plans to leave $1,000,000 in property to his wife.This amount will reduce the value of Carl's gross estate and will be taxed later when Carol dies.This reduction of the gross estate is called the

Consumer experts typically recommend all of the following rules when buying life insurance EXCEPT

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 traditional net cost per thousand per year of David's policy over the 20-year period?

The first step in "shopping for life insurance" is to

Some life insurers sell insurance directly to the public by using telephone representatives or fee-only financial planners.As the marketing expenses are substantially lower,the insurer can pass the savings on to the purchaser.The life insurance sold in this manner is called

Which of the following statements about the traditional net cost method of measuring the cost of life insurance is (are)true? I.The traditional net cost method does not consider the time value of money. II.The traditional net cost method can show that life insurance has a negative cost.

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

Mary is interested in comparing life insurance policies.Rather than looking at the cost per thousand,she would like to compare the rate of return earned on the savings portion of the policy.Which of the following would be of the most interest to Mary?

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 net payment cost of this policy,per thousand per year,over the first 10 years the policy is in force?

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