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FP1 / Practice Exam 2/35 Complete Q’s and A’s
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FP1 / Practice Exam 2/35 Complete Q’s and A’s
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FP1 / Practice Exam 2/35Complete Q’s and A’s
Vivian buys a life insurance policy in which the insurer pays policyholders
dividends based on how well the life insurer is doing. If the insurer is
profitable, Vivian will receive dividends. If the insurer underperforms
financially, Vivian and other policyholders will receive fewer dividends.
Indicate the type of insurance policy Vivian purchased.
A. Variable life insurance.
B. Participating life insurance.
C. Limited-pay life insurance.
D. Non-participating life insurance - -B. Participating life insurance.
- Choose the type of insurance that combines term and whole life for a
predetermined contract period and guarantees a sum of money for either the
beneficiar(ies) or at the end of the term for the contract holder.
A. Variable life insurance.
B. Universal life Insurance.
C. Permanent life Insurance.
D. Endowment life insurance. - -D. Endowment life insurance.
Endowment life insurance is a combination of term life and whole life. It
provides coverage for a specified period of time (usually to age 65) and
builds cash value. If the insured should die during the period of coverage, the
beneficiary receives the face amount of coverage. If the insured does not die
during the period of coverage, the policy owner receives the entire face
value of the policy as a cash payment and the insurance coverage ceases.
Reference: Module 4, Section 2.
- Select the type of insurance that can be extended, at the option of the
policyholder, at the end of the term without medical evidence of insurability.
A. Level term insurance.
B. Decreasing term insurance.
C. Convertible term insurance.
D. Renewable term insurance. - -D. Renewable term insurance.
Renewable term insurance allows for the policy to be extended for another
term of equal length without the insured having to provide medical evidence
of insurability.
, - Henry, a 48 year-old director of engineering at an environmental firm, has
$50,000 in Canada Savings Bonds on which he earns 3% interest annually.
He has paid off the mortgage on his house but he has an outstanding
$30,000 bank loan (taken out for home improvements) on which he pays 6%
interest. His marginal tax rate is 50%. Select the action an advisor is most
likely to recommend to Henry?
A. Cash in $30,000 of CSBs and pay off the bank loan. 0%
B. Don't do anything; let the situation remain as it is.
C. Cash in $30,000 of CSBs and pay off the bank loan, then borrow $30,000
and invest it in a conservative balanced fund.
D. Cash in $30,000 of CSBs and pay off the bank loan, then borrow $50,000
and invest it in an aggressive equity fund. - -C. Cash in $30,000 of CSBs and
pay off the bank loan, then borrow $30,000 and invest it in a conservative
balanced fund.
The most likely recommendation involves paying off the bank loan by
cashing in CSBs and then borrowing the previous loan amount and investing
it so that interest on the new loan becomes tax deductible. While borrowing
more than the previous loan amount (in C.) could be an option, it would
change the risk profile and risk tolerance level, and that may not be the best
route to take.
- Jacob who is about to retire, strategically moves a major portion of his
investment portfolio into Canada Savings Bonds (CSBs), guaranteed funds
and money market funds. Select the loss control technique he implemented
to reduce his exposure to potential equity market declines in his retirement
years.
A. Loss reduction.
B. Loss carryover.
C. Loss prevention.
D. Loss avoidance. - -D. Loss avoidance.
Loss avoidance is not exposing one's self to a particular risk. The loss of
capital due to a stock market crash can be avoided by investing in
guaranteed term deposits rather than in equities.
- What type of risk retention is a form of "self-insurance" or handling the
unavoidable risk internally?
A. Active risk retention.
B. Tangible risk retention.
C. Passive risk retention.
D. Intangible risk retention. - -A. Active risk retention.
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