Exam 13: Buying Life Insurance

The net premiums collected by a life insurer for a particular block of policies,plus interest income at an assumed rate,less assumed death benefits paid is called the

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

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?

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 makes an absolute assignment of the policy and dies more than three years later,the policy is not counted as part of his gross estate.

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 interest for 20 years,the premiums would grow to $79,156.If the dividends were accumulated at 5 percent interest 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 interest 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?

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

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