Exam 13: Buying Life Insurance

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

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?

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.

Which of the following statements about the yearly-rate-of-return method (also known as the Belth method)of calculating the yearly rate of return for a life insurance policy is (are)true? I.The formula requires the use of benchmark prices per $1,000 of protection. II.The main drawback of the formula is its complexity,necessitating the use of a computer to calculate the rate of return.

Brad owns a cash value life insurance policy.Last year,the cash value increased by $300.Brad received $100 in policyowner dividends on the policy last year.Brad was the beneficiary named in his grandmother's $50,000 life insurance policy.When she died this past year,Brad received $50,000.How much taxable income relating to life insurance must Brad report for federal income tax purposes?

All of the following statements about the surrender cost index for measuring the cost of life insurance are true EXCEPT

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?

The difference between the present value of future benefits payable under a life insurance policy and the present value of net premiums for the policy is the policy's

Which of the following statements is (are)true regarding taxation of life insurance? I.Life insurance proceeds paid in a lump-sum to a designated beneficiary are received free of federal income taxes. II.The policyowner must pay taxes annually on the amount by which the cash value of his or her life insurance policy has increased.

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

Which method of analyzing the cost of life insurance does not consider the cash value of the policy in the analysis?

The National Association of Insurance Commissioners (NAIC)has drafted a "Life Insurance Policy Illustration" model law that most states have adopted.Which of the following statements concerning this model law is true? I.The policy illustration must include a narrative summary describing the basic characteristics of the policy. II.The policy illustration must include a numeric summary showing the premium outlay,the value of the accumulation account,the cash surrender value,and the death benefit.

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.

Life insurance policy reserves

Major factors that must be considered in determining the cost of life insurance include all of the following EXCEPT

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?

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?

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

Which of the following statements about the Linton yield is (are)true? I.It is based on the assumption that a cash-value policy can be viewed as a combination of insurance protection and a savings fund. II.It is the average compound annual rate of return required to make the savings deposits in a life insurance policy equal to the policy's guaranteed cash value at the end of a specified period.