Personal Financial Planning 14th Edition by Randy Billingsley – Test Bank

Personal Financial Planning 14th Edition by Randy Billingsley – Test Bank

Chapter 8—Insuring Your Life

1. The basic purpose of insurance is to protect you from the financial consequences of losing assets or income due to accident, illness, or death.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-1 – LO: 8-1

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Understanding

2. Spreading risk among a large number of people is a major principle of insurance.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-1 – LO: 8-1

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – KS – DISC: Risk and Return
United States – AK – DISC: Risk and return

KEYWORDS:

Bloom’s: Understanding

3. Risk avoidance means asking an insurance company to take over the risk for a small payment (the premium).

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Challenging

LEARNING OBJECTIVES:

PFIN.BILL.17.8-1 – LO: 8-1

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Understanding

4. Underwriters can predict whether or not you will suffer a loss this year.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-1 – LO: 8-1

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – KS – DISC: Risk and Return
United States – AK – DISC: Risk and return

KEYWORDS:

Bloom’s: Analyzing

5. Credit life insurance is often a requirement of credit card issuers.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Understanding

6. Generally, the primary purpose of life insurance is to provide a tax-advantaged investment plan.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-2 – LO: 8-2

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – KS – DISC: Risk and Return
United States – AK – DISC: Risk and return

KEYWORDS:

Bloom’s: Understanding

7. ​

The multiple-of-earnings method of determining life insurance needs is simple but can be unreliable.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-3 – LO: 8-3

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Understanding

8. The needs analysis method is the most accurate approach to determining the proper amount of life insurance to buy.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-3 – LO: 8-3

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – KS – DISC: Risk and Return
United States – AK – DISC: Risk and return

KEYWORDS:

Bloom’s: Understanding

9. The needs analysis method can be used to determine your life insurance requirements with a single step.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-3 – LO: 8-3

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

10. The life insurance needs of beneficiaries are secondary since most proceeds are paid to living policyholders.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-2 – LO: 8-2

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – KS – DISC: Risk and Return
United States – AK – DISC: Risk and return

KEYWORDS:

Bloom’s: Remembering

11. The primary purpose of life insurance is to protect family members financially after one’s death.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-2 – LO: 8-2

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

12. The need for additional life insurance can be determined by looking at the difference between available resources and family monetary needs.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-3 – LO: 8-3

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – KS – DISC: Risk and Return
United States – AK – DISC: Risk and return

KEYWORDS:

Bloom’s: Remembering

13. Social security benefits are often available resources to the family after the death of a family member.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-3 – LO: 8-3

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

14. The three major categories of life insurance are term, straight life, and limited payment.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Challenging

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – KS – DISC: Risk and Return
United States – AK – DISC: Risk and return

KEYWORDS:

Bloom’s: Remembering

15. Term insurance is generally the most economical form of life insurance for young families.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

16. Guaranteed renewable term insurance allows you to renew the policy for another term without qualifying medically.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – KS – DISC: Risk and Return
United States – AK – DISC: Risk and return

KEYWORDS:

Bloom’s: Remembering

17. Life insurance needs change dramatically over one’s lifetime.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

18. The right of the policyholder to the cash value of a whole life policy is a nonforfeiture right.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Challenging

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

19. Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

20. Limited payment whole life insurance is a contract written for a given number of years after which the face value is automatically paid to the insured.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

21. When you stop making premium payments on a whole life policy, the policy’s cash value is forfeited.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Challenging

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

22. Unbundling in universal life insurance means that the cost of the insurance and savings elements are identified separately for the policy owner to see.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

23. The waiver-of-premium benefit excuses premium payment while the insured is experiencing short-term illness.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-6 – LO: 8-6

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Understanding

24. Whole life policies typically provide a high investment rate of return.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Analyzing

25. The returns on term life insurance policies receive favorable tax treatment.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Understanding

26. A variable life policy combines life insurance coverage with investment options.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

27. Like universal life insurance, variable life insurance provides a minimum guaranteed return.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Creating

28. Group life insurance is often provided as a fringe benefit by employers.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

29. Group life insurance is usually term life insurance.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

30. Credit life insurance is sold in conjunction with installment loans.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

31. Because premiums get higher as you age, it is probably advisable for you to buy life insurance at age 20 to save money whether or not you need the insurance then.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Challenging

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Analyzing

32. Universal life insurance is often suitable for single college students since the cost is quite low.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-2 – LO: 8-2

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Understanding

33. If a named beneficiary does not survive an insured, the proceeds of the policy revert to the insurance company.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-6 – LO: 8-6

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

34. One should typically name both primary and contingent beneficiaries for life insurance policies.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-6 – LO: 8-6

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

35. The life-income-with-period-certain option guarantees a specified number of settlement payments that are passable to secondary beneficiaries.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Challenging

LEARNING OBJECTIVES:

PFIN.BILL.17.8-6 – LO: 8-6

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Analyzing

36. An attractive feature of whole life insurance is the availability of loans from the cash value.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Understanding

37. Loans are available from term life insurance policies.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

38. You may reinstate your lapsed life insurance policy without passing a physical examination.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

39. A waiver-of-premium benefit excuses premium payments if the insured becomes totally and permanently disabled.

a.

True

b.

False

ANSWER:

True

POINTS:

1

LEARNING OBJECTIVES:

PFIN.BILL.17.8-6 – LO: 8-6

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Understanding

40. All types of life insurance offer a cash surrender value.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Challenging

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Understanding

41. Life insurance death benefits are, as a rule, subject to income taxes.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

42. Policy dividends paid on participating policies are a return of unused premium based upon the claims experience of the insurance company.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Challenging

LEARNING OBJECTIVES:

PFIN.BILL.17.8-6 – LO: 8-6

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

43. Bobby Lee died of cancer. His $40,000 policy had a triple indemnity clause. His beneficiary will receive $120,000.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Challenging

LEARNING OBJECTIVES:

PFIN.BILL.17.8-6 – LO: 8-6

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Applying

44. It is advisable to purchase life insurance from a relatively small, newly formed company.

a.

True

b.

False

ANSWER:

False

POINTS:

1

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

PFIN.BILL.17.8-5 – LO: 8-5

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

45. A life insurance policy’s cash value may be collected by terminating the policy.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

46. Low-load whole life policies grow cash values more quickly than traditional whole life policies.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering

47. Cash value is an important component of whole life, universal life, and variable life but is never a component of term life insurance.

a.

True

b.

False

ANSWER:

True

POINTS:

1

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

PFIN.BILL.17.8-4 – LO: 8-4

NATIONAL STANDARDS:

United States – BUSPROG: Reflective Thinking

STATE STANDARDS:

United States – AK – DISC: Risk and return
United States – KS – DISC: Risk and Return

KEYWORDS:

Bloom’s: Remembering