Insurance Pricing

Multiple Choice

Which of the following is a major problem with traditional cost analysis when purchasing life insurance?

• It considers only the first-year premiums and ignores long-term costs.

• It always results in the lowest possible premium.

• It focuses on annual premiums and ignores dividends.

• It provides accurate long-term cost estimates.

Multiple Choice

Which steps are involved in the traditional net cost method for estimating the cost of life insurance?

• Sum total premiums, subtract dividends, subtract cash value, divide by years

• Sum total premiums, add dividends, subtract cash value, multiply by years

• Sum total premiums, subtract dividends, add cash value, divide by years

• Sum total premiums, subtract dividends, subtract cash value, multiply by years

Fill in the Blanks

What is the formula for calculating the annual cost using the traditional net cost method? Fill in the blank: (Total Premiums - Dividends - Cash Value) ÷

= Annual Cost

Open Ended

Compare the major flaws of the traditional net cost method with the advantages of the interest-adjusted cost method.

Fill in the Blanks

The Interest-Adjusted Cost Method uses compound interest to adjust for time value, typically at a rate of

%.

Open Ended

What are the key differences between the surrender cost index and the net payment cost index in evaluating insurance policies?

Multiple Choice

Which method provides a more accurate reflection of the true economic cost of insurance: the traditional net cost method or the interest-adjusted cost method?

• Traditional net cost method

• Interest-adjusted cost method

• Surrender cost index

• Net payment cost index

Multiple Select

Based on the real-world cost variations among insurers, which factors contribute to substantial differences in policy costs over 20 years?

• Policyholder's age

• Surrender cost index

• Annual premium

• All of the above

Open Ended

Why is it important for consumers to avoid terminating a cash-value policy early, according to the Linton yield trend?

Fill in the Blanks

The Linton yield method typically shows

returns in the early years of a cash-value life insurance policy.

Fill in the Blanks

The yearly rate-of-return method focuses on the

component of a life insurance policy.

Multiple Choice

Which components are included in the numerator and denominator of the yearly rate-of-return formula for cash-value insurance policies?

• Numerator: CV, D, YPT, DB; Denominator: P, CVP

• Numerator: P, CVP; Denominator: CV, D, YPT, DB

• Numerator: CV, D, P; Denominator: YPT, DB, CVP

• Numerator: CVP, DB; Denominator: CV, D, YPT, P

Multiple Choice

Based on the step-by-step calculation example, what is the final yearly rate-of-return for Isiah's policy?

• 9.3%

• 7.1%

• 1.071%

• 4.0%

Open Ended

How do benchmark prices for life insurance change as age increases, and what might be the reason for this trend?

Multiple Choice

Which of the following life insurance components is generally income-tax free under federal income tax treatment?

• Premiums

• Cash Value Growth

• Death Benefits

• Policy Surrender

Open Ended

Compare the timing requirements and planning considerations for excluding life insurance proceeds from federal estate tax. What steps should be taken to ensure exclusion?

Fill in the Blanks

Federal estate tax applies to life insurance proceeds under certain conditions. Fill in the blank: Proceeds are excluded from the estate if the assignment is made more than

years before death.

Multiple Choice

Which of the following is NOT one of the seven essential rules for life insurance shopping?

• Estimate Amount

• Shop Around

• Choose a policy based solely on price

• Determine Need

Multiple Select

Which factors should be considered when estimating the amount of life insurance coverage needed?

• Future expenses such as education and mortgage

• Income replacement needs

• Current health status

• Avoiding over-insuring or under-insuring

Open Ended

Explain the difference between term life and whole life insurance, and discuss when each might be appropriate for a consumer.

Fill in the Blanks

Participating policies offer dividends based on insurer

performance.

Open Ended

Why is it important to select an insurer with high ratings from multiple rating agencies when shopping for life insurance?

Multiple Select

Which qualities define an ideal professional agent when selecting life insurance?

• Technical competence

• Ethical standards

• Client-first intent

• High commission focus

Open Ended

Reflecting on the learning objectives, what aspect of life insurance pricing do you find most challenging or interesting, and why?

Multiple Choice

Which of the following is NOT a learning objective for the topic 'Insurance Pricing'?

• Determining cost of life insurance

• Determining the annual rate of return on the saving

• Describe the seven rules to follow when purchasing life insurance

• Explaining the history of insurance companies

Multiple Choice

Which of the following is NOT a recommended best practice when analyzing the cost of life insurance policies?

• Use interest-adjusted cost data such as surrender cost index and net payment cost index

• Compare only similar policy types with identical coverage and benefits

• Prioritize higher cost index values to maximize expenses

• Prioritize lower cost index values to avoid unnecessary expenses