finance final- chapter 8

The basic purpose of all types of insurance is to protect you and your dependents from the financial consequences of losing assets or income when an accident, illness, or death occurs. true
Many buildings are equipped with sprinkler systems that come on in the event of fire. This protection is an example of loss control
Robert’s health maintenance organization (HMO) regularly sponsors classes on nutrition, prenatal care, and other health-related topics. Encouraging a healthy lifestyle is an example of both loss prevention and loss control
Recently your puppy chewed up your shoes and you had to go buy another pair. This would be an example of risk assumption. true
When you purchase an insurance policy, you are effectively transferring your risk of loss to the insurance company. ture
It is economically feasible for insurance companies to accept the risk of their policyholders because the loss for any one of the insured’s individually is more predictable than are the losses for an entire group of policyholders. false
With the underwriting process, insurance companies decide whom they can insure, determine the applicable rates for those they do insure, and guard against adverse selection
adverse selection occurs only when high-risk policyholders apply for and get insurance coverage; insurance companies try to avoid this happening through underwriters
Benefits of life insurance include financial protection for dependents, protection from creditors, and tax savings
Insurance that builds cash value can also serve as a vehicle for savings. true
In determining how much life insurance you need, a more detailed approach is provided by the needs analysis method
Reasons why people purchase life insurance include to provide income for their dependents, to pay off debts so their family will be relatively debt free, and to provide liquidity so their family will have the cash needed upon the death of the breadwinner
For most families, money from ________ make up the largest non-life-insurance financial resources. savings, investments, and Social Security survivor’s benefits
Life insurance is necessary for everyone. false
Features of term life insurance include all of the following EXCEPT for a savings feature that builds up through time
If policyholders terminate their whole life insurance policies, they must forfeit any cash value that has built up. false
Of the various types of whole life insurance policies available, continuous premium (straight life) offers ________. the greatest amount of permanent death protection and the least amount of savings per premium dollar
Which offers the best lifelong protection against financial loss resulting from death? continuous premium (straight life)
Whole life insurance policies build cash value that cannot be borrowed against. false
An advantage of whole life insurance would be the premium payments contribute toward building an estate for the insured, having to pay the premiums forces people to save money regularly, and the cash value account is tax sheltered
Universal life insurance provides only one feature: savings. false
Variable life insurance provides policyholders with a low-risk means of obtaining greater returns on their cash value accounts. false
All of the following are true of group life EXCEPT: the premium is based on characteristics of the individual, but purchased at a group rate
The cost of a life insurance policy can vary much from company to company for the same type of coverage. true
You should probably limit the insurance companies you consider to those that have been doing business for at least ________ and that have annual premium volume in excess of ________. 25 years; $100 million
All of the following statements are true of insurance company ratings EXCEPT: all ratings from insurers must be published
If you don’t pay your life insurance premiums on time, you stand to lose your policy immediately upon being late. false
All of the following are true regarding policy loans EXCEPT policy loans must be repaid
The nonforfeiture option pays a policyholder the cash value when the policy is terminated before maturity
A ________ increases the face amount of a policy if the insured dies in an accident. multiple indemnity clause
Insurance companies can rarely modify the premium charges or the coverage offered if the insured takes up a hazardous hobby such as Formula One racing after the policy is issued. true
One must devise the four strategies: risk avoidance, loss prevention and control, risk assumption, and insurance in order to anticipate and deal with risk exposures that can devastate your financial security. true
Term life insurance is the most complex type of insurance policy. false
risk prevention avoiding an act that would create a risk
loss prevention any activity that reduces the probability that a loss will occur
loss control any activity that lessens the severity of loss once it occurs
risk assumption choice to accept and bear the risk of loss
non-working spouse method # of years until the youngest child reaches 18 X(times) $10,000
the family need method considers employer provided insurance, social security benefits, income and assets and takes current situation and finding what they need then subtracting what they have
term insurance goes up every year, moves more significantly once you reach 30-35 years olddoes not provide for accumulation of cash value either premium is going up or death value is going down buy as much term insurance as you can when you’re young if you have children”mortgage protection term policy”not permanent
types of term insurance straight term policy- coverage remains unchanged throughout the effective perioddecreasing term policy- premium remains unchanged while coverage decreases
whole life insurance permanent coverage for life insurancethe premium stays the sameCash Value- accumulated refundable value of an insurance policyNonforfeiture Policy- provides policyholder the assets allotted for future death claim, upon policy cancellation

Leave a Reply

Your email address will not be published. Required fields are marked *