Exam 13: Buying Life Insurance

All of the following statements about the tax treatment of life insurance purchased by an individual are true EXCEPT

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 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

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.

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

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

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

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?

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.

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?

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.

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

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

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

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

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?

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?

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.

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. 399,693,53914,928 409,678,61115,970 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?

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