AAFM Financial Planning Principles Flashcards
7 cards from real AAFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 AAFM Financial Planning Principles flashcards as text
A young single professional with no dependents is deciding on life insurance. Which need is typically lowest for this client?
Answer: Income replacement for dependents
With no dependents relying on their income, the need for income-replacement life insurance is minimal.
Which type of risk is best managed by transferring it to an insurance company?
Answer: Low-frequency, high-severity risk
Insurance is most efficient for rare but potentially catastrophic losses.
What is the primary advantage of tax-deferred retirement accounts in planning?
Answer: Contributions and growth are not taxed until withdrawal
Tax deferral lets contributions and earnings compound without annual taxation until distribution.
A client's diversified portfolio still carries which type of risk that cannot be diversified away?
Answer: Systematic (market) risk
Systematic risk affects the whole market and remains despite diversification.
Which asset allocation is generally most appropriate for an investor with a long time horizon and high risk tolerance?
Answer: A higher weighting toward equities
Long horizons and high risk tolerance favor equities for greater long-term growth potential.
What is the main purpose of naming a beneficiary on a retirement account?
Answer: It allows the account to pass directly outside probate
A named beneficiary lets the account transfer directly to heirs, bypassing probate.
Which insurance concept refers to the insured retaining part of a loss through a deductible?
Answer: Risk retention
Accepting a deductible means the insured retains a portion of the potential loss.