Question 1

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?

Accepted Answer

A)  $5.62
B)  $13.75
C)  $15.77
D)  $27.38 C

Question 2

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

Accepted Answer

A)  Dividends are ignored.
B)  The cash value is ignored.
C)  Premiums are not accumulated at a specified interest rate.
D)  Dividends are not accumulated at a specified interest rate. B

Question 3

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

Accepted Answer

A)  the maximum number of years the premium could be paid.
B)  the ordinary life annuity factor for the premium payment period.
C)  the present value of a life annuity due of $1 for the premium payment period.
D)  the deferred life annuity factor for the premium payment period. C

Question 4

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.
39 9,693,539 14,928
40 9,678,611 15,970
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?

Accepted Answer

A)  $1.49
B)  $2.94
C)  $5.67
D)  $12.83

Question 5

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

Accepted Answer

A)  terminal reserve.
B)  unearned premium reserve.
C)  mean reserve.
D)  initial reserve.

Question 6

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

Accepted Answer

A)  It is based on the assumption that the policy will be in force indefinitely.
B)  It takes into account the settlement options available in the policy.
C)  It does not consider the cash value in the policy.
D)  It takes the amount and timing of each dividend into consideration.

Question 7

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?

Accepted Answer

A)  -$2.86
B)  -$2.14
C)  -$1.92
D)  -$0.88

Question 8

The net single premium for a life insurance policy is

Accepted Answer

A)  the premium the insurer charges to cover the death benefit and the insurer's expenses.
B)  the future value of the future death benefit.
C)  the present value of the future death benefit.
D)  the face value of the policy discounted back for the number of year the policy will be in force.

Question 9

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?

Accepted Answer

A)  $4.48
B)  $4.75
C)  $4.92
D)  $5.16

Question 10

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?

Accepted Answer

A)  the needs approach
B)  the traditional net cost method
C)  the human life value approach
D)  the surrender cost index

Question 11

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?

Accepted Answer

A)  borrow the cash value of the policy
B)  make an absolute assignment of the policy to someone else
C)  change the beneficiary to someone who does not have insurable interest
D)  select a lump sum settlement option and name her estate the beneficiary

Question 12

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

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 13

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?

Accepted Answer

A)  the total premiums for the period less the policy reserve at the end of the period.
B)  the total premiums for the period less the sum of the total dividends received during the period and the cash value at the end of the period.
C)  the sum of the total premiums and dividends for the period less the cash value at the end of the period.
D)  the sum of the total dividends received during the period and the cash value at the beginning of the period less the total premiums paid for the period.

Question 14

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.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 15

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

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 16

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.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 17

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.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 18

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?

Accepted Answer

A)  $5.62
B)  $13.75
C)  $15.77
D)  $27.38

Question 19

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

Accepted Answer

A)  divided by 5.
B)  divided by the future value life annuity due factor for $1 for five years.
C)  divided by the present value life annuity due factor for $1 for five years.
D)  divided by the present value ordinary life annuity factor for $1 for five years.

Question 20

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

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Exam 13: Buying Life Insurance

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

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

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

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

The net single premium for a life insurance policy is

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?

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?

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

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?

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.

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

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