FIN 428 Week 3 Quiz

FIN 428 Week 3 Quiz

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 FIN 428 Week 3 Quiz




Correct answerquestion1


Group life insurance premiums paid by an employer are deductible by the employer and nontaxable to the employee

when included as a part of a pension plan.

up to 10% of the employee’s salary.

for up to $50,000 in group permanent life insurance.

for up to $50,000 in term life insurance.




Correct answerquestion2


Mr. Jones dies leaving a $100,000 life insurance policy to his wife. The wife elects to take the $100,000 over a ten year period and receives $11,130 per year.  What part of this payment is taxable as income to the wife?

Only the $100,000, which may be spread over the ten year period during which it is received

$11,130 per year

$1,130 per year

None of it




Correct answerquestion3


The least impressive feature cited in support of life insurance as an investment is

the compulsion it entails.

the favorable tax treatment.

you don’t have to die to collect.

the safety of principal.




Correct answerquestion4


The normal length of the suicide exclusion in life insurance policies is

one month from the date of issue.

six months from the date of issue.

five years from date of issue.

two years from date of issue.




Correct answerquestion5


The three primary elements in life insurance ratemaking are

mortality, expenses, and profits.

costs, profits and taxes.

mortality, loading, and expenses.

interest, mortality, and loading.




Correct answerquestion6


The specific requirements regarding evidence of insurability imposed on the insured under the reinstatement clause are

intended to avoid a loss of investment income.

required by the changing investment income over time.

necessary to prevent adverse selection.

designed to offset the cost of reissuing the policy.




Correct answerquestion7


The cash value in a whole life insurance policy

increases until it meets the face of the contract at the end of the policy period.

lowers because the premium paid in the early years is less than the cost of protection.

is similar in value as compared to a term insurance policy.

raises or lowers depending on its fair market value at the end of the policy period.




Correct answerquestion8


Life insurance contracts receive favorable tax treatment in that

in computing taxable gain, the insured may deduct all premiums paid, including the element that paid for protection.

the investment earnings on the cash value of insurance policies are not considered a taxable gain.

although proceeds to a beneficiary are usually taxable as income, it is at a reduced rate.

the investment earnings on the cash value are only taxed during the period of accumulation.




Correct answerquestion9


The rate of return on the investment element in cash value life insurance policies

is guaranteed in the policy to always be a positive return.

varies widely among life insurance companies.

is typically the same among life insurance companies.

is readily apparent and relatively easy for the layperson to compute.




Correct answerquestion10


Mr. Jones purchased a $50,000 whole life policy with double indemnity on May 1, 2000.  On May 25, 2002, he committed suicide.  The insurer will be required to pay

only the premiums which Jones has paid to the company.


the company will not be required to pay anything.





Correct answerquestion11


The factor that has had the greatest influence on the growth of employee benefits has been 

employer efforts to improve employee morale.

the favorable tax treatment.

the fact that coverage is on a group basis and is therefore less expensive.

union negotiation for benefits.




Correct answerquestion12


Under the grace period clause used in life insurance

any premium in default will be waived if the insured should die during the period.

the policy is continued for 30 days under the extended term option.

any premium in default will be deducted from the face amount of the policy if the insured should die during the period.

the policy is continued for 60 days after a premium due is in default.




Correct answerquestion13


The most logical classification of the types of life insurance contracts is between

those that insure a single life and those that insure multiple lives.

those that offer pure protection and those that combine protection and savings.

those that meet Internal Revenue Code requirements and those that do not.

those that receive favorable tax treatment and those that do not.




Correct answerquestion14


In purchasing life insurance, the first decision that should be addressed is

the minimum interest-adjusted cost that will be considered.

whether to buy term insurance or cash value insurance.

how much life insurance is needed.

the company from which life insurance should be purchased.




Correct answerquestion15


Assuming the same face amount and age at issue, which of the following would have the highest cash value at the end of 10 years?

Whole life

20 pay life policy

20-year term

10-year term




Correct answerquestion16


Assuming the same face amounts and issue at age 35, which of the following would have the highest premium?

A 20 pay life policy

A 30 pay life policy

A whole life policy

A paid-up at age 65 whole life policy




Correct answerquestion17


Life insurance which provides for payment only if the insured dies within a specific time period is

ordinary life insurance.

term insurance.

whole life insurance.

limited pay life insurance.




Correct answerquestion18


To reinstate a policy that has lapsed, the insured must:

make one lump-sum payment to pay the entire balance owing in full.

provide tax returns for the past five years for review.

pay or reinstate any indebtedness under the policy.

pay a $500 non-refundable reinstatement fee.




Correct answerquestion19


Whole life insurance

may be purchased under several premium paying options.

may not be purchased under several premium paying options.

develops cash values which may not be used for retirement.

guarantees protection of the insured for a specified period.




Correct answerquestion20


A policy is described as mature when

all premiums due have been paid.

when the face amount is payable to the insured.

when the premium payment period has ended.

when the cash value equals the net single premium for the insured at his attained age.




Correct answerquestion21


Decreasing term insurance is most suited to meeting which of the following needs?

Educational funds

Final expenses

Family income

Retirement income




Correct answerquestion22


A misstatement of age by an applicant for life insurance

voids the policy if discovered during the contestability period.

makes the policy voidable at the option of the company if discovered during the contestability period.

has no effect on the policy unless it is discovered during the contestability period.

changes the amount of insurance to the amount that the premium paid would have purchased at the correct age.




Correct answerquestion23


The grace period clause

is designed to avoid unintentional lapses.

must be taken out by the insured at the time the policy is taken out or it is not applicable.

provides that any premium in default will be paid out of the existing cash values.

permits the insured to purchase insurance which he or she could not otherwise afford.




Correct answerquestion24


In evaluating universal life policies, the factors that should be considered in judging costs include

the expense loadings charged by the insurer.

fees associated with state-mandated benefits.

the total cost paid out in insurance claims over the last twelve months.

the insurer’s projected advertising costs based on current market share.




Correct answerquestion25


Group insurance is a less expensive form of protection than individual policies because

mortality experience has been better under individual policies.

commissions to agents are higher.

the insurance company performs certain administrative functions on behalf of the employer.

commissions to agents are lower.

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