Iowa State University Personal Risk Management and Insurance Exam Questions Life Cycle Financial Risks Individual Life Insurance, Group Life Insurance, and

Iowa State University Personal Risk Management and Insurance Exam Questions Life Cycle Financial Risks Individual Life Insurance, Group Life Insurance, and Annuities Employment-Based Risk Management (General) Take Home Exam 3 – Part 1 (Choose the BEST answer)
1. Life insurance can be thought of as a contract providing a hedge against which of the following?
a) premature death
b) poor health
c) longevity
d) retirement
2. When purchasing life insurance, the policy owner buys a contract for which of the following?
a) economic security
b) the future delivery of dollars
c) peace of mind
d) safety from final expenses
3. Which of the following characterizes unbundling?
a) feature of universal life that clearly shows the separate effect of expense components
b) feature of universal life that clearly shows the separate effect of mortality, investment, and expense components
c) feature of universal life that clearly shows the separate effect of investment and expense components
d) feature of universal life where the value of the annuity contract during the accumulation period consists of
premiums plus investment earnings minus expenses
4. What is a reserve?
a) in life insurance, funds accumulated to offset the deficiency of periodic premium payments falling short of
providing promised death benefits in later years of a policy
b) in life insurance, a premium that remains constant throughout the premium-paying period, instead of rising from
year to year
c) for the insurer, the difference between the funding reserve at any point in time and the face amount of the policy
d) for the insured, the difference between the funding reserve at any point in time and the face amount of the policy
5. From the following, what best characterizes a premium element(s)?
a) adjustments made in life insurance rates for investment income
b) adjustments made in life insurance rates for marketing/administrative costs and taxes
c) adjustments made in life insurance rates for taxes and actuarial risks
d) adjustments made in life insurance rates for items such as investment income, marketing/administrative costs,
taxes and actuarial risks
6. Which of the following characterizes yearly renewable term life insurance?
a) life insurance purchased showing insurability on a yearly basis
b) life insurance purchased on annual cost basis
c) life insurance that guarantees right to purchase on a year-by-year basis
d) cost index if term life insurance if purchased on a year-by-year basis
7. As a person advances in age, ordinary life premiums are expected to do which of the following?
a) stay the same as when originally purchased
b) increase
c) decrease
d) fluctuate annually based on premium adjustments
8. A guaranteed insurability option gives the policy owner the right to do which of the following without new proof of
insurability?
a) pay more in cash value
b) purchase additional amount of coverage
c) renew insurance
d) reduce insurance amount
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9. Which of the following describes surrender expenses?
a) increase the death benefit of a life insurance policy annually, consistent with the previous year’s increase in the
consumer price index
b) in a life insurance policy, can be any amount determined periodically by the insurer as long as the charge does not
exceed the guaranteed maximum mortality rate specified in the contract
c) in a life insurance policy, expenses applied at the beginning of each month or year consisting of some combination
of a percentage of new premiums paid, a small flat dollar amount per month or year, and a larger flat dollar amount
in the first policy year
d) in a life insurance policy, marketing and administrative expenses applied when policies are terminated
10. The desire to have cash value incorporated in life insurance premium payments is motivated by the objective of:
a) offsetting administrative costs, taxes and actuarial risk
b) creating savings or investment funds
c) offsetting premium costs
d) tax disadvantages of savings
11. . In terms of annuities, which of the following describes an annuitant?
a) the person or entity that purchases an annuity
b) the person or entity who receives any death benefits due at the death of the annuitant
c) the person on whose life expectancy payments are based
d) the person or entity who receives any death benefit if the original recipient of the and death benefits dies
12. If the insured dies due to suicide more than two years after purchasing an insurance policy, what is likely to happen?
a) more than likely, the insurer cannot contest the policy
b) more than likely, the insurer can contest the policy
c) more than likely, the insurer will pay benefits
d) more than likely, the insurer will not pay benefits
13. What is the protection amount?
a) in life insurance, funds accumulated to offset the deficiency of periodic premium payments falling short of
providing promised death benefits in later years of a policy
b) in life insurance, a premium that remains constant throughout the premium-paying period, instead of rising from
year to year
c) for the insurer, the difference between the funding reserve at any point in time and the face amount of the policy
d) for the insured, the difference between the funding reserve at any point in time and the face amount of the policy
14. The trend for life insurance industry has been toward which of the following?
a) higher life insurance rates
b) improvement of life insurance rates
c) stable life insurance rates
d) quality of life insurance products
15. Which of the following characterizes the accumulation period of annuities?
a) the time during which premiums are being paid toward an annuity
b) the time during which the accumulation value and future investment returns of an annuity contract are being
liquidated by benefit payments
c) the value of the annuity contract during the accumulation period; consists of premiums plus investment earnings
minus expenses
d) time during which benefits are taxed for premiums collected
16. In terms of life insurance, term insurance promises to do which of the following?
a) pay cash accumulation of the policy
b) pay the face amount of the policy plus cash value
c) pay the face amount of the policy
d) pay the face amount of the policy minus cash accumulation of the policy
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17. Term policies are not often renewable beyond age 70 because of which of the following?
a) adverse selection
b) little demand
c) low profitability
d) high lapse rates
18. Which of the following characterizes a life insurance dividend?
a) offers lifetime protection but limits premium payments to a specified period of years or to a specified age; after
premiums have been paid during the specified period, the policy remains in force for the balance of life without
further premium payment
b) premiums that are paid in equal periodic amounts over the life of the insured
c) paid by participating whole life contracts to insureds for the purpose of refunding higher-than-necessary premiums
and sharing company profits with policy owners
d) where the only premium paid is an amount equal to the present value of future benefits, with discounts both for
investment earnings and mortality
19. What is an immediate annuity?
a) begins payments at the next payment interval (for example, month, quarter, or year) after purchase; requires a
single premium
b) begins payments sometime in the future as elected by the owner; the annuity may be funded by a single premium,
equal installments, or, more commonly, by flexible premiums
c) earns investment returns at rates guaranteed by the insurer, subject to periodic changes in the guaranteed rate for the
next period; a set amount of benefit per dollar of accumulation (varying also by life expectancy when benefits
begin) is paid during the liquidation period
d) returns vary with the investment performance of special investment accounts; the amount of benefit payment may
vary from month to month or at another interval
20. In terms of variable life insurance, who accepts the risks of investment?
a) the insurer
b) the policy owner
c) the market
d) the beneficiary
21. Which of the following describes a period-certain option?
a) combination of a fixed period annuity and a life annuity; payments stop at the end of a specified period or at the
death of the annuitant, whichever comes first
b) guarantees that the annuitant and/or beneficiary will receive, during the liquidation period, minimum payments
equal to the single premium in an immediate annuity or the accumulation value in a deferred annuity
c) guarantees a minimum number of annuity payments whether the annuitant lives or dies
d) makes payments for a specified period, such as twenty years, and then ceases
22. Which of the following defines universal life insurance?
a) provides coverage for a specified period, called the policy’s term (or duration)
b) provides for payment of the face value upon death regardless of when the death may occur; “permanent insurance”
c) offers competitive investment features and the flexibility to meet changing consumer needs by allowing
policyholder to change the amount of premium periodically, discontinue premiums and resume them at later date
without lapsing the policy, and change the amount of death protection
d) provides the opportunity to invest funds in the stock market; created to overcome policyholder fears that inflation
will erode life insurance values
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23. Which of the following characterizes unbundling?
a) feature of universal life that clearly shows the separate effect of expense components
b) feature of universal life that clearly shows the separate effect of mortality, investment, and expense components
c) feature of universal life that clearly shows the separate effect of investment and expense components
d) feature of universal life where the value of the annuity contract during the accumulation period consists of
premiums plus investment earnings minus expenses
24. What is a variable annuity?
a) begins payments at the next payment interval (for example, month, quarter, or year) after purchase; requires a
single premium
b) begins payments sometime in the future as elected by the owner the annuity may be funded by a single premium,
equal installments, or, more commonly, by flexible premiums
c) earns investment returns at rates guaranteed by the insurer, subject to periodic changes in the guaranteed rate for the
next period; a set amount of benefit per dollar of accumulation (varying also by life expectancy when benefits
begin) is paid during the liquidation period
d) returns vary with the investment performance of special investment accounts; the amount of benefit payment may
vary from month to month or at another interval
25. Which of the following characterizes a waiver of premium rider?
a) in life insurance, provides that premiums due after commencement of an insured’s total disability shall be waived
for a period of time
b) in life insurance, provides a typical income benefit of $10 per month per $1,000 of initial face amount of life
insurance for as long as an insured’s total disability continues and after the first six months of such disability,
provided it commences before age 55 or 60
c) in life insurance, usually provides that double the face amount of the policy will be paid if the insured’s death is
caused by accident, and, sometimes, triple the face amount if death occurs while the insured is riding as a paying
passenger in a public conveyance
d) in whole life insurance, guarantees that a policyholder who decides to cancel the policy can either take cash value
or continue the policy in force as extended term insurance and paid-up insurance
26. A COLA rider is described as which of the following?
a) feature of a life insurance policy where any amount determined periodically by the insurer as long as the charge
does not exceed the guaranteed maximum mortality rate specified in the contract
b) feature of a life insurance policy that clearly shows the separate effect of mortality, investment, and expense
components
c) feature of a life insurance policy where the death benefit increases annually, consistent with the previous year’s
increase in the consumer price index (CPI)
d) feature of a life insurance policy where the value of the annuity contract during the accumulation period consists of
premiums plus investment earnings minus expenses
27. Which of the following describes front-end expenses?
a) increase the death benefit of universal life annually, consistent with the previous year’s increase in the consumer
price index
b) in universal life, can be any amount determined periodically by the insurer as long as the charge does not exceed
the guaranteed maximum mortality rate specified in the contract
c) in universal life, expenses applied at the beginning of each month or year consisting of some combination of a
percentage of new premiums paid, a small flat dollar amount per month or year, and a larger flat dollar amount in
the first policy year
d) in universal life, marketing and administrative expenses applied when policies are terminated
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28. Which of the following characterizes limited-payment life insurance?
a) form of whole life insurance that offers lifetime protection but limits premium payments to a specified period of
years or to a specified age; after premiums have been paid during the specified period, the policy remains in force
for the balance of life without further premium payment
b) form of whole life insurance where premiums are paid in equal periodic amounts over the life of the insured
c) in life insurance, allows the insured to re-demonstrate insurability periodically, perhaps every five years, and
qualify for a new (lower) select category of rates that are not initially loaded for adverse selection
d) form of life insurance where the only premium paid is an amount equal to the present value of future benefits, with
discounts both for investment earnings and mortality
29. If there has been a misstatement of a covered person’s age or sex on the policy, which of the following actions would
the insurance company take if there is a claim?
a) amount of benefits would not change
b) amount of benefits will be adjusted to that which the premium paid would be have been covered correctly
c) amount of benefits would be re-adjusted once the proper premium has been paid
d) amount of benefits would be suspended until the proper premium has been paid if any
30. Which of the following characterizes a grace period?
a) provides that loans are taken automatically from the policy’s cash value to pay premiums at the end of a certain
period of time as stated in the contract
b) period of time within which, after the death of the insured, the insurers refund any premium paid but unearned for
the term
c) period of time within which payment of a past-due insurance premium (excluding the first premium) must be
accepted by the insurer
d) period of time within which a life insurance policy can be surrendered for cash, while being able to reinstate the
policy at any time within five (in some cases, three, ten, or more) years after premium payments were stopped
31. Which of the following describes a joint-and-survivor annuity?
a) names two annuitants and payments stop when the first joint annuitant dies
b) names two annuitants and continues payments as long as at least one annuitant is alive
c) pays benefits of a set amount per period until the accumulation value at the time benefits begin plus investment
earnings during the liquidation period are exhausted
d) the income option is based on the life expectancy of the annuitant alone, assuming the annuitant lives until the
liquidation period
32. Which of the following characterizes nonforfeiture options?
a) in whole life insurance, guarantees that a policyholder who decides to cancel the policy can either take cash for the
surrender (cash) value or continue the policy in force as extended term insurance and paid-up insurance
b) nonforfeiture option where the death benefit of a whole life policy continues at its previous level for as long as the
cash value supports this amount of term insurance
c) nonforfeiture option where death benefits are paid up completely without expiration date, as if a new policy
providing a lower death benefit was were in place
d) period of time within which payment of a past-due insurance premium (excluding the first premium) must be
accepted by the insurer
33. Which of the following characterizes a revocable beneficiary?
a) life insurance beneficiary that can be changed at will by the policy owner
b) in life insurance, enables the owner of the policy to designate to whom the proceeds shall be paid when the insured
dies
c) life insurance beneficiary that can be changed only with the consent of the beneficiary
d) in life insurance, beneficiaries who are entitled to the proceeds in the event that the primary (first-named)
beneficiary does not survive the insured
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34. Which of the following characterizes single-premium life insurance?
a) form of whole life insurance that offers lifetime protection but limits premium payments to a specified period of
years or to a specified age; after premiums have been paid during the specified period, the policy remains in force
for the balance of life without further premium payment
b) form of whole life insurance where premiums are paid in equal periodic amounts over the life of the insured
c) in life insurance, allows the insured to re-demonstrate insurability periodically, perhaps every five years, and
qualify for a new (lower) select category of rates that are not initially loaded for adverse selection
d) form of life insurance where the only premium paid is an amount equal to the present value of future benefits, with
discounts both for investment earnings and mortality
35. Which of the following characterizes contingent beneficiaries?
a) life insurance beneficiary that can be changed at will by the policy owner
b) in life insurance, enables the owner of the policy to designate to whom the proceeds shall be paid when the insured
dies
c) life insurance beneficiary that cannot be changed only with the consent of the beneficiary
d) in life insurance, beneficiaries who are entitled to the proceeds in the event that the primary beneficiary does not
survive the insured
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