Exam 13: Buying Life Insurance

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 surrender cost index for measuring the cost of life insurance is true?

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

The average annual rate of return on a cash-value policy if it is held a specified number of years is called the policy's

According the 2001 CSO mortality table,the yearly probability of dying for a 40 year-old man is .00165.The present value of $1 one year from today,assuming a 5.5 percent interest rate,is .9479.What is the net single premium per $1,000 for a one-year term insurance policy sold to a man at age 40 assuming a 5.5 percent interest rate? Assume the premium is paid at the start of the year and the death benefit is paid at the end of the year.

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

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

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

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 (are)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.

A factor that can be ignored when determining the cost of life insurance is

The net single premium for a life insurance policy is

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.

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

Life insurance policy reserves

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 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 statement is true regarding using interest-adjusted cost data and purchasing life insurance?

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?

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. 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?