#1
Which of the following is a basic principle of life insurance?
Risk sharing
ExplanationPooling risk among policyholders to mitigate individual financial burdens.
#2
Which of the following is a characteristic of term life insurance?
Provides coverage for a specified term and has no cash value
ExplanationOffering temporary coverage for a predetermined period without cash accumulation.
#3
What is the primary function of the beneficiary in a life insurance policy?
To receive the death benefit upon the policyholder's death
ExplanationReceiving financial proceeds upon the insured's death as outlined in the policy.
#4
What does the term 'underinsured' mean in the context of life insurance?
Having insufficient coverage to meet financial needs
ExplanationPossessing coverage below the required amount to adequately address financial obligations.
#5
What is the primary function of the policyowner in a life insurance policy?
To pay the premiums and manage the policy
ExplanationOwning the policy, paying premiums, and having authority over policy management and beneficiary designations.
#6
What is the primary purpose of the death benefit in a life insurance policy?
To provide income replacement for the beneficiaries
ExplanationReplacing lost income for dependents after the policyholder's death.
#7
Which of the following is a common life insurance policy option that allows the policyholder to accumulate cash value?
Universal life insurance
ExplanationCombining insurance coverage with a savings component for cash value growth.
#8
What is the purpose of the cash value component in a life insurance policy?
To accumulate savings and investment growth
ExplanationBuilding a tax-deferred cash reserve over time, offering liquidity and potential returns.
#9
What does the term 'riders' refer to in the context of life insurance?
Additional policy benefits or options that can be added for an extra cost
ExplanationCustomizable features enhancing a standard policy, tailored to specific needs or preferences.
#10
What is the purpose of the suicide clause in a life insurance policy?
To exclude coverage for self-inflicted injuries
ExplanationPreventing payouts for policyholder suicides within a specified period after policy initiation.
#11
In life insurance, what does the term 'underwriting' refer to?
Assessing and evaluating risks associated with insuring a particular individual
ExplanationDetermining the risk profile of an applicant to set appropriate premiums and coverage.
#12
Which life insurance policy provides coverage for a specified term and does not accumulate cash value?
Term life insurance
ExplanationOffering coverage for a set period without investment or cash value features.
#13
Which life insurance policy allows policyholders to invest in separate accounts with variable returns?
Variable life insurance
ExplanationOffering flexibility to invest premiums in various funds, potentially yielding higher returns.
#14
What is the purpose of the incontestability clause in a life insurance policy?
To prevent the insurer from denying a claim after a certain period
ExplanationRestricting the insurer from contesting the validity of the policy after a defined timeframe.
#15
What is the primary factor that determines the premium amount in a life insurance policy?
Policyholder's age and health
ExplanationEvaluating the individual's mortality risk based on age, health, and lifestyle factors.