PFS Risk Management & Insurance Planning 1 — Questions and Answers
Question 1: What type of life insurance provides a death benefit for a specified period with no cash value accumulation?
- Term life insurance (Correct answer)
- Whole life insurance
- Universal life insurance
- Variable life insurance
Correct answer: Term life insurance
Term life insurance provides a death benefit only during the specified coverage period and expires without cash value if the insured outlives the term.
Question 2: The 'human life value' approach to determining life insurance needs is based on:
- The insured's current net worth
- The present value of the insured's future earnings (Correct answer)
- The insured's outstanding debts only
- Replacement cost of household services
Correct answer: The present value of the insured's future earnings
The human life value method calculates the present value of the insured's projected future earnings that would be lost upon death.
Question 3: A disability income policy with an 'own-occupation' definition pays benefits when the insured:
- Cannot work in any occupation whatsoever
- Cannot perform the material duties of their specific occupation (Correct answer)
- Is hospitalized for more than 30 consecutive days
- Suffers any chronic illness
Correct answer: Cannot perform the material duties of their specific occupation
Own-occupation policies pay benefits when the insured cannot perform the duties of their specific occupation, even if they are capable of working in another field.
Question 4: The elimination period in a disability income policy functions most like which feature in property insurance?
- Coverage limit
- Deductible (Correct answer)
- Coinsurance clause
- Subrogation right
Correct answer: Deductible
The elimination period is a waiting period before disability benefits begin, analogous to a time-based deductible the insured must 'satisfy' before receiving benefits.
Question 5: Which type of life insurance allows the policyholder to adjust both the premium payments and the death benefit amount?
- Term life
- Whole life
- Universal life (Correct answer)
- Endowment policy
Correct answer: Universal life
Universal life insurance offers flexibility to adjust both premium payment amounts and death benefit levels within policy limits, unlike rigid whole life structures.
Question 6: In a 'key person' life insurance arrangement, who is the owner and beneficiary of the policy?
- The key employee and their estate
- The business entity itself (Correct answer)
- The key employee's spouse
- A trust established by shareholders
Correct answer: The business entity itself
In key person insurance, the business purchases, owns, and is the beneficiary of the policy on a crucial employee to offset financial losses from that person's death.
PFS Risk Management & Insurance Planning 1
What type of life insurance provides a death benefit for a specified period with no cash value accumulation?