Life Insurance Concepts C17 & C19

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Questions and Answers

What method can be used to assess the economic value of human life?

Capitalization approach (correct)

Depreciation method

Future earning potential analysis

Present cash flow analysis

What type of life insurance provides pure death protection valid only during the policy period?

Variable life insurance

Whole life insurance

Term life insurance (correct)

Universal life insurance

Which statement accurately describes the living benefit of a life insurance policy?

Payouts to beneficiaries after death

Tax-free payouts for specific needs while alive (correct)

Payouts determined by beneficiary designation

Funds available due to a non-terminal condition

How is the cost of death protection calculated according to life insurance principles?

(#dying/#alive)*$1,000 Signup and view all the answers

Which of the following is a characteristic of whole life insurance?

Provides lifetime protection with level premiums Signup and view all the answers

What distinguishes term life insurance from whole life insurance?

Term insurance has no cash value Signup and view all the answers

What is the primary characteristic of universal life insurance?

Flexible premium payments with a minimum interest guarantee based on bonds Signup and view all the answers

What is a key disadvantage of non-qualified retirement plans?

They prohibit employer contributions from being classified as employee compensation. Signup and view all the answers

In the context of life insurance, what is a reserve?

Funds accumulated to ensure death benefits are met Signup and view all the answers

What is one advantage of using annuities?

They guarantee monthly income for life, mitigating longevity risk. Signup and view all the answers

Which aspect of the Affordable Care Act has been a point of controversy?

The requirement for individuals to maintain health insurance coverage. Signup and view all the answers

Why is protection against disability especially important for younger workers?

They often lack financial resources to cover long-term absence from work. Signup and view all the answers

What does Part D of Medicare specifically cover?

Prescription drug coverage. Signup and view all the answers

What does the Waiver of Premium rider allow a policyholder to do?

Skip premium payments if they become disabled or unable to work Signup and view all the answers

Which of the following accurately describes group life insurance?

It provides coverage to multiple people under a single policy Signup and view all the answers

What distinguishes a contributory plan from a non-contributory plan?

Non-contributory plans require no employee payments Signup and view all the answers

Which benefit is found in a qualified plan that is not present in a non-qualified plan?

Deduction as a business expense for the employer Signup and view all the answers

Which life rider allows purchase of additional coverage without a medical exam?

Guaranteed Insurability Option Signup and view all the answers

What is a key characteristic of individual life insurance?

It offers tailored coverage and benefits to policyholders Signup and view all the answers

What is one advantage of employee benefits in the context of total compensation?

They improve employee retention by offering various noncash compensations Signup and view all the answers

How is group insurance typically priced?

Through a flat premium rate for all members regardless of risk factors Signup and view all the answers

Study Notes

C17

Understand various life cycle risks/exposures
Be familiar with statistical tables (mortality, longevity, morbidity, disability, annuity)
Assess the economic value of human life (income they would've acquired if survived)
Needs assessment (financial needs of dependants)
Capitalization approach (principal reservation + income)
Know the difference between cash (taxable) and non-cash (non-taxable) employment-based benefits
Non-cash benefits are like non-cash benefits (not free)

C19

Understand how life insurance works (pooling) and rate calculation (discounted mortality)
Calculate cost of death protection (# dying/# alive) * $1,000
Understand term, whole, universal (type a/b), and variable life insurance
TERM: year-to-year premiums, death protection during policy period
WHOLE: Lifetime protection, level premiums
UNIVERSAL: guaranteed min interest based on bonds, flexible death benefit, cash accumulation
VARIABLE: Mutual fund (riskier), fixed, depends on stock value

C20

Be familiar with level premium payment method and reserve (cash value) accumulation
Level premiums: remain constant
Cash value: accumulated funds for savings
Understand living and death benefit differences and tax implications
Living benefit: payouts while alive, tax-free if for qualified expenses
Death benefit: lump sum to beneficiaries, tax-free unless in estate
Calculate after-tax value of whole life insurance policy
Review whole life policy provisions
Waiver of premium: skip payments if disabled
Accidental death benefit: additional payout for accidental death
Guaranteed insurability option: buy coverage without medical exam
Understand group vs. individual life insurance
Group: multiple people, lower premiums, employer-sponsored
Individual: tailored coverage, higher cost

C21

Understand employee benefits, group insurance, and total compensation
Non-cash compensation (group insurance, educational assistance, etc.)
Employer-employee group insurance pricing
Nondiscrimination concept and enforcement
Contributory vs. non-contributory plans
Non-contributory: funded only by employer
Contributory: employee pays part of pension fund
Qualified vs. non-qualified plans
Qualified: deductible business expense, not taxable income until received
Non-qualified: business expense deduction only if compensation
Understand types of retirement plans (DC, DB, 401(k), IRA, Roth IRA)
Be familiar with annuities (types, options, advantages/disadvantages, longevity risk mitigation)

C22

Understand Health Care System in the U.S., changes, advantages/disadvantages
Be familiar with spectrum of health plans (costs, coverage, advantages/disadvantages)
Understand Affordable Care Act components, controversies, and health care costs in US
Continuum of health plans, major medical plans
Importance of disability protection, group LTD coverage
Accountable Care Organization (advantages/disadvantages, quality of care, cost)
Know how US social security program (OASDHI) works, its benefits, financial problems, and potential solutions.
Understand Medicare Health Insurance Program (Parts A, B, D) and SS benefits

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Description

This quiz covers essential concepts of life insurance, including life cycle risks, statistical assessments, and the evaluation of human life economics. Additionally, it explores different types of life insurance policies, their functions, and calculations involved in determining premiums and benefits. Test your knowledge on these crucial financial topics!