All of the following statements about the income tax treatment of individually-purchased life insurance are true EXCEPT A) policyowner dividends are received tax-free. B) the annual increase in cash value is not taxable while the policy remains in force. C) premiums paid for individual life insurance are a tax deductible expense. D) life insurance proceeds […]
The average annual rate of return on a cash-value policy if it is held a specified number of years is called the policy’s A) net present value. B) interest-adjusted cost. C) benchmark cost. D) Linton yield. ANSWER Answer: D
Life insurance policy reserves A) are always equal to the policy’s cash surrender value. B) are a major asset of life insurance companies. C) are paid to the beneficiary when the insured dies. D) are a major liability of life insurance companies. ANSWER Answer: D
All of the following statements about the tax treatment of life insurance purchased by an individual are true EXCEPT A) The annual increase in the cash value is currently taxable. B) Premium payments are not tax deductible. C) Death benefits received in a lump sum are not taxable income. D) Policyowner dividends are not considered […]
Why might the use of “grades” assigned by a life insurance company rating organization not be a reliable guide for consumers? I. There may be variations in grades given by different rating organizations. II. They ignore factors such as profitability and quality of investments. A) I only B) II only C) both I and II […]
Which of the following statements about the yearly-rate-of-return method (also known as the Belth method) of calculating the yearly rate of return for a life insurance policy is (are) true? I. The formula requires the use of benchmark prices per $1,000 of protection. II. The main drawback of the formula is its complexity, necessitating the […]
Consumer experts typically recommend which of the following rules when purchasing life insurance? I. Avoid policies which pay dividends. II. Purchase life insurance equal to ten times your annual salary. A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: D
Marshall is interested in determining the cost per thousand of his life insurance policy. Which of the following will provide Marshall the most meaningful measure of the cost per thousand dollars per year of his life insurance? A) the needs approach B) the traditional net cost method C) the human life value approach D) the […]
Which method of analyzing the cost of life insurance does not consider the cash value of the policy in the analysis? A) traditional net cost method B) net payment cost index C) the Linton Yield D) the surrender cost index ANSWER Answer: B
Mary is interested in comparing life insurance policies. Rather than looking at the cost per thousand, she would like to compare the rate of return earned on the savings portion of the policy. Which of the following would be of the most interest to Mary? A) the policy’s Linton Yield B) the policy’s surrender cost […]
