Florida Life & Health Insurance Exam — All Questions
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Which statement best describes term life insurance?
- a.It provides lifetime protection and builds guaranteed cash value
- b.It provides death benefit protection for a specified period and normally builds no cash value✓
- c.It allows the policyowner to skip premiums using the policy's savings element
- d.It pays a benefit only if the insured survives the term
Term insurance provides pure death benefit protection for a stated period (for example, 10 or 20 years) and, because there is no savings element, it generally builds no cash value, which makes it the lowest-cost way to buy a large death benefit. The first option describes permanent (whole) life. The third option describes a feature of cash-value policies, which term does not have. The fourth option is backwards: term pays if the insured dies during the term, not if the insured survives it.
A key characteristic that distinguishes whole life insurance from term insurance is that whole life:
- a.Has premiums that increase each year
- b.Covers the insured only until age 65
- c.Provides lifetime coverage and accumulates cash value✓
- d.Never pays a death benefit if the insured lives a long time
Whole life is a form of permanent insurance: it provides coverage for the insured's entire life (as long as premiums are paid) and accumulates a guaranteed cash value that grows over time. Traditional whole life features a level premium that does not increase, so the first option is wrong. It does not terminate at age 65, so the second is wrong. Because coverage is lifetime, it is designed to pay a death benefit whenever death occurs (policies typically endow at about age 121), making the fourth option wrong.
Which type of permanent policy is known for allowing the policyowner to adjust the premium amount and the death benefit within limits after issue?
- a.Universal life insurance✓
- b.Level term insurance
- c.Single premium immediate annuity
- d.Traditional (ordinary) whole life insurance
Universal life is a flexible-premium, adjustable death benefit policy: the owner can vary the timing and amount of premiums and can increase or decrease the death benefit (subject to insurer rules and possible evidence of insurability). Level term has fixed premiums and a fixed benefit for the term. A single premium immediate annuity is not life insurance at all; it converts a lump sum into an income stream. Traditional whole life has a fixed, level premium and a fixed face amount, which is exactly the rigidity universal life was designed to overcome.
Under the 'human life value' approach to determining how much life insurance a person needs, the insurer primarily estimates:
- a.The total of the insured's outstanding debts only
- b.The replacement cost of the insured's home and possessions
- c.The face amount the applicant simply requests
- d.The insured's future earnings that would be lost to the family if the insured died✓
The human life value approach measures the present value of the insured's future earnings that the family would lose if the insured died prematurely, capturing the economic value of that income stream. It is broader than simply totaling current debts, which is only one piece of a needs analysis. It has nothing to do with the replacement cost of property (that is property insurance). And it is a systematic calculation, not merely the amount the applicant asks for.