WorksheetsWhat is Life Insurance?
Total questions: 49
Worksheet time: 25mins
Which statement best defines life insurance as presented in the material?
A savings account that grows tax-free for retirement
A contract where you pay premiums and the insurer promises a lump-sum death benefit to beneficiaries
A government program that pays monthly income to all citizens
An investment fund that guarantees market returns
In a life insurance policy, what are premiums?
The lump-sum payment given to beneficiaries
Regular payments you make to the insurance company
Fees charged to beneficiaries after a death
Interest earned on the policy's cash value
A family wants financial protection if a wage earner dies. Based on the material, which feature of life insurance directly addresses this need?
Flexible investment options that track the stock market
Tax deductions on mortgage interest
A death benefit paid to beneficiaries
Coverage for routine medical expenses
Which statement best distinguishes the two main categories of life insurance introduced in this section?
Term life provides coverage for a specific period, while whole life provides coverage for your entire life.
Term life and whole life both provide lifetime coverage.
Whole life provides coverage for a specific period, while term life provides coverage for your entire life.
Term life and whole life have identical cost structures and features.
According to the material, which factor varies between term life and whole life policies?
Coverage periods only
Cost structures, coverage periods, additional features, and benefits/limitations
Only benefits and limitations
None; they are the same across both types
Term life insurance is described as providing coverage for which duration?
For your entire life
Until retirement age
A specific period (term) such as 10, 20, or 30 years
Only until a mortgage is paid off
If a person outlives the policy term of a term life insurance, what happens according to the section?
The policy pays reduced benefits.
The policy pays full benefits.
No benefits are paid.
Premiums are refunded with interest.
Which statement reflects the idea of “pure protection” as used for term life insurance?
It pays only if you die during the term.
It pays dividends annually.
It accumulates cash value over time.
It guarantees lifetime coverage without renewals.
What is one flexibility feature of term life insurance noted in the material?
It can never be changed once purchased.
It can often be renewed or converted to permanent insurance.
It must be bundled with a mortgage.
It automatically becomes whole life after 30 years.
Which type of life insurance provides coverage for your entire lifetime?
Term life insurance
Whole life insurance
Accidental death insurance
Universal health insurance
In whole life insurance, which statement about premiums is accurate?
Premiums start low and increase at renewal
Premiums fluctuate with market returns
Premiums typically remain level and do not increase
Premiums are paid only when you borrow against cash value
What happens to the cash value in a whole life insurance policy?
It decreases over time due to fees
It grows tax-deferred
It is paid out monthly as dividends
It only grows when you renew the policy
Which feature allows policyholders to access funds from their whole life insurance without surrendering the policy?
Premium holiday
Policy loans against cash value
Term conversion
Renewal rider
According to the cost comparison, how does the price of whole life insurance generally relate to term life insurance for similar coverage?
Whole life is usually cheaper than term
Whole life is about the same cost as term
Whole life is 5–15 times more expensive than term
Whole life cost cannot be compared to term
A healthy 30-year-old is considering $250,000 of coverage. Based on the example provided, which monthly cost range aligns with term life insurance?
$15–30 per month
$50–75 per month
$200–300 per month
$400–600 per month
Which statement best explains why whole life premiums are higher than term life premiums?
Whole life includes an investment component that builds cash value
Whole life coverage ends after a set term
Term life guarantees dividends
Term life premiums remain level for your entire lifetime
Which statement best defines the death benefit in a life insurance policy?
The amount of premiums paid by the policyholder
The face value paid to beneficiaries when the insured dies
The cash value available during the insured’s lifetime
The interest earned on investments outside the policy
How is the death benefit typically paid to beneficiaries?
As a taxable annuity
As a tax-free lump sum
As monthly taxable payments
As a loan that must be repaid
Who chooses the amount of the death benefit when purchasing a policy?
The insurance company
The beneficiaries
The policyholder
The government
Cash value is a feature of which kind of life insurance?
Term life insurance
Permanent life insurance (like whole life)
Travel insurance
Disability insurance
What happens to cash value growth for permanent policies over time?
Grows quickly in the early years then slows
Remains constant each year
Grows slowly in early years, faster later
Decreases each year
Which statement about taxes on cash value growth is correct?
Taxes are due annually on all growth
Growth is tax-deferred
Growth is taxed only if interest rates fall
Growth is always tax-free even when withdrawn
Which option is a way to access cash value during your lifetime?
Policy loans
Selling the beneficiary designation
Increasing the face value automatically
Claiming the death benefit early
What is a consequence if a policy loan is not repaid with interest?
The premium increases automatically
It reduces the death benefit
The cash value disappears immediately
The policy lapses the next day
If you surrender (cancel) your policy, which outcome occurs?
You receive the full face value and keep coverage
You receive the cash value minus surrender fees and lose death benefit protection
You receive nothing and keep death benefit protection
You must repay all premiums before receiving any funds
Which factors influence the rate at which cash value grows?
Beneficiaries’ ages, policyholder’s income, tax bracket
Type of policy, insurance company, current interest rates
Funeral costs, college expenses, debts
Government regulations, inflation only
Which statement correctly compares term life insurance to permanent life insurance regarding cash value?
Both offer cash value but term has more
Only term life has cash value
Cash value is not available with term life insurance
Cash value is available only if you add beneficiaries
How can accumulated cash value help with premiums later in life?
It allows you to avoid surrender fees
It can be used to help pay premiums
It automatically increases the face value
It eliminates the need for beneficiaries
Which description best explains cash value within a permanent policy?
A savings or investment-like account within your policy
A separate mutual fund you must open at a bank
A government bond attached to the policy
A tax credit applied to your premiums
Which factor is commonly used to estimate income replacement when determining life insurance coverage?
1–3 times annual salary
4–6 times annual salary
7–10 times annual salary
12–15 times annual salary
According to the guidance, average funeral costs typically fall within which range?
2,000– 5,000
7,000– 12,000
12,000– 18,000
$20,000+
What does the DIME formula stand for when estimating life insurance coverage?
Debt, Income, Mortgage, Education
Dependents, Insurance, Medical, Estate
Debts, Investments, Money, Emergencies
Distribution, Income, Maintenance, Expenses
Which item is NOT explicitly included in the DIME formula?
Debt and final expenses
Income replacement
Mortgage balance
Retirement savings
For a single person with no children, life insurance coverage is mainly intended to address which needs?
Income replacement and retirement planning
Funeral expenses and debt payoff
Childcare and education costs
Estate taxes and investment goals
Which life stage typically requires much more coverage due to factors like childcare and future education expenses?
Single with no children
Retired couple
Couple with children
Young adult living with parents
A household wants coverage using the DIME approach. They have 20,000infinalexpensesanddebts,need 600,000 for income replacement, owe 180,000ontheirmortgage,andestimate 100,000 for children’s education. What total coverage target does DIME suggest?
$600,000
$800,000
$900,000
$1,000,000
When you cancel a term life insurance policy, what typically happens to your coverage and any value returned?
Coverage ends and you usually receive the cash surrender value
Coverage continues but premiums decrease
Coverage simply ends and usually no refund or value is returned
Coverage ends and surrender charges are applied
Upon cancelling a whole life policy, what amount do you receive?
The full cash value
The cash surrender value, which equals cash value minus surrender charges
A prorated death benefit
No payout of any kind
What is a key consequence of cancelling a whole life policy besides receiving cash surrender value?
Premiums are refunded
You lose the death benefit protection
You keep partial coverage for 6 months
Your coverage automatically converts to term
Which is the best first step when shopping for life insurance?
Compare quotes from multiple companies
Assess your needs and budget
Check company financial strength ratings
Ask questions about anything unclear
Which action helps ensure you’re choosing a stable insurer?
Reading policy details carefully
Researching different policy types
Checking company financial strength ratings
Using online comparison tools
What is a recommended way to begin gathering price information when shopping for life insurance?
Contacting only captive agents
Comparing quotes from multiple companies, including through online comparison tools
Waiting for a company to mail you an offer
Reading policy details before seeking quotes
Which statement best distinguishes captive agents from independent agents?
Captive agents represent one insurance company; independent agents represent multiple companies
Both captive and independent agents represent the client, not the insurance company
Independent agents can only sell term policies
Captive agents must charge fees for their services
Which description best fits an insurance broker?
Represents a single insurance company
Works for the client and can access many different insurance providers, often with broader market knowledge
Is not required to be licensed
Can only offer policies from companies they are appointed with
Which statement about licensing is correct for insurance professionals?
Only brokers must be licensed
Neither brokers nor agents require licenses
Both brokers and agents must be licensed in your state
Agents are licensed nationally, brokers locally
Which statement best describes the difference between term life and whole life insurance?
Term life is more expensive and permanent; whole life is cheaper and temporary
Term life is cheaper and temporary; whole life costs more and builds cash value
Term life builds cash value; whole life pays no death benefit
Term life and whole life have identical features
Which action is recommended when shopping for life insurance policies?
Buy the first policy you see
Shop around and compare policies from different providers
Avoid professional advice
Never review coverage once purchased
A young single adult just started a job and has no dependents. Based on the takeaways, which approach to coverage is most reasonable?
Buy the most expensive whole life policy immediately
Purchase coverage aligned to current financial responsibilities and review as needs change
Skip insurance entirely because they are single
Choose a policy without comparing providers
Which resource or support is suggested to help find the best life insurance policy?
A lottery ticket
Working with a broker or agent
Social media influencers
Ignoring professional input
