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RMI_FIN 3100 Exam #4 Marlett (ch. 11 & 15) .
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RMI_FIN 3100 Exam #4 Marlett (ch. 11 & 15) .
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RMI/FIN 3100 Exam #4 Marlett (ch. 11 & 15)Life insurance is justified if - ANS-the insured has earned income and others are
dependent on them financially
Ways to estimate amount of life insurance - ANS-human life value and needs approach
Human Life Value - ANS-present value of the families share of deceased breadwinner's
future earnings. Annual earnings of productive lifetime minus taxes, insurance
premiums and self maintenance costs
Needs Approach - ANS-depends on the needs that must be met if the family head
should die
Estate Clearance Fund - ANS-cash needed for uninsured medical bills, burial expenses,
and taxes (considered under needs approach)
Readjustment Period - ANS-1-2 year period in which family adjusts to living standard
(considered under needs approach)
Dependency Period - ANS-period until the youngest child reaches age 18 (considered
under needs approach)
Blackout Period - ANS-period from the time that Social Security survivor benefits
terminate to the time the benefits are resumed (considered under needs approach for
surviving spouse during and after period)
Special Needs - ANS-refers to other cases such as funds for college education and
emergencies (considered under needs approach)
how many families have no life insurance - ANS-1 in 5
Types of life insurance - ANS-term insurance and cash-value/whole life insurance
term insurance - ANS-provides temporary protection. Appropriate when limited amount
can be spent on life insurance and need for protection is temporary. Most are renewable
and premiums increase each renewal. Most are also convertible, so they can be
exchanged for cash-value policy. Premiums increase at increasing rate reaching
prohibitive levels
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