CFC Insurance and Risk Management 1 — Questions and Answers
Question 1: Which type of life insurance provides permanent coverage and builds cash value through a separate investment account?
- Term life insurance
- Whole life insurance
- Variable universal life (VUL) insurance (Correct answer)
- Group term insurance
Correct answer: Variable universal life (VUL) insurance
Variable universal life insurance combines permanent coverage with investment subaccounts, allowing policyholders to allocate cash value to equity or bond funds.
Question 2: A disability income policy with an 'own-occupation' definition covers a claimant who:
- Cannot perform any job in the economy
- Cannot perform the specific duties of their own occupation (Correct answer)
- Is partially disabled only
- Has a pre-existing condition only
Correct answer: Cannot perform the specific duties of their own occupation
An own-occupation definition pays benefits if the insured cannot perform the duties of their specific occupation, even if they can work in another field.
Question 3: Which long-term care insurance (LTCI) benefit trigger requires that a claimant be unable to perform a specified number of Activities of Daily Living (ADLs)?
- 2 out of 6 ADLs (Correct answer)
- 1 out of 3 ADLs
- 5 out of 6 ADLs
- All 6 ADLs
Correct answer: 2 out of 6 ADLs
Most LTCI policies and Medicaid require inability to perform at least 2 of 6 standard ADLs (bathing, dressing, eating, transferring, toileting, continence) to trigger benefits.
Question 4: An 'umbrella' liability insurance policy primarily provides:
- Replacement cost coverage for personal property
- Excess liability coverage above underlying home and auto policy limits (Correct answer)
- Life insurance for catastrophic events
- Health coverage for international travel
Correct answer: Excess liability coverage above underlying home and auto policy limits
Personal umbrella policies extend liability coverage beyond the limits of underlying homeowners and auto policies, protecting against large judgments or settlements.
Question 5: Which annuity type guarantees a fixed income payment for life regardless of how long the annuitant lives?
- Fixed deferred annuity
- Life-only (straight life) annuity (Correct answer)
- Variable annuity
- Indexed annuity
Correct answer: Life-only (straight life) annuity
A life-only annuity provides guaranteed income payments for the annuitant's lifetime, with payments ceasing at death — maximizing income but providing no death benefit.
Question 6: The human life value approach to life insurance need analysis estimates coverage based on:
- Final expenses and outstanding debts only
- The present value of the insured's future earnings stream (Correct answer)
- Current income times a fixed multiplier of 10
- The cost of replacing household services
Correct answer: The present value of the insured's future earnings stream
The human life value approach calculates insurance need as the present value of future net earnings the insured would have generated for their family.
CFC Insurance and Risk Management 1
Which type of life insurance provides permanent coverage and builds cash value through a separate investment account?