Question 1

A human life may have an economic value that can logically serve as the basis for life insurance in which of the following situations?
I. The individual is age 23 and unmarried and has no children.
II. The individual has only one dependent, an aged father.
III. The individual has no dependents but makes sizeable periodic gifts to a favorite charity.

1) II only

2) I and III only

3) II and III only

4) I, II, and III

Question 2

Which of the following is an element of the technically accurate method of calculating the economic value of an individual's life?

1) Deduct the cost of the individual's self-maintenance, life insurance premiums, and personal income taxes.

2) Discount for the contingency of the individual's death, but not for the contingencies of his or her disability or unemployment.

3) Reduce the residual income of the individual to his future value.

4) Calculate the size of a fund whose investment earnings will be sufficient to replace the dependents' share of the individual's income.

Question 3

Which of the following statements about charitable giving is(are) true?
I. Charitable gifts can be used to minimize estate taxes.
II. A donor can give an existing life insurance policy to a charity, but the charity is not allowed to pay premiums.
III. A donor can name the charity as the beneficiary of an existing life insurance contract.
IV. Life insurance to fund family needs can free assets and other property to be given to the charity.

1) I and II only

2) II and III only

3) I, III, and IV only

4) I, II, and IV

5) I, II, and III only

Question 4

Which of the following describe(s) a practical difficulty of insuring an individual for the full amount of his or her economic human life value?
I. The economic value of the human life is usually far less than the minimum amount of insurance a typical life insurance company will issue.
II. The economic value of the human life is typically greatest during the years when the individual's ability to pay premiums is low.

1) I only

2) Both I and II

3) II only

4) Neither I nor II

Question 5

The ongoing income needs of the typical family following the death of the breadwinner include all of the following, EXCEPT:

1) Income with which to create an emergency fund.

2) Income for a readjustment period.

3) Income until the youngest child is self-sufficient.

4) Income for the surviving spouse after Social Security and possible pension benefits begin.

Question 6

Which of the following statements concerning the economic value of the typical human life is (are) correct?
I. It tends to diminish with the passage of time.
II. It is at its peak when the individual's annual earnings reach their peak.

1) I only

2) II only

3) Both I and II

4) Neither I nor II

Question 7

All of the following statements about trusts are true, EXCEPT:

1) A trust may own one or more life insurance policies.

2) A trust may be the beneficiary of a life insurance policy.

3) A trust arrangement may be used to minimize the estate tax liability.

4) A trust is required to pass any life insurance proceeds through to individual beneficiaries within nine months.

Question 8

Life insurance is primarily concerned with which of the following aspects of the human life value?

1) The religious value

2) The social value

3) The economic value

4) The moral value

Question 9

All of the following are steps in the five-step process of estimating a person's economic value for purposes of life insurance, EXCEPT:

1) Determining the remaining number of years in the person's life expectancy.

2) Estimate the person's average annual earnings from the personal efforts during the remainder of the person's working years.

3) Deduct the cost of the person's self-maintenance, life insurance premiums, and income taxes.

4) Select a reasonable rate of interest to use in discounting future earnings.

Question 10

All of the following statements concerning the cash surrender of a life insurance policy are correct, EXCEPT:

1) The taxable gain is the total surrender value minus the policy owner's current basis.

2) The loan principal is subtracted from the surrender value of the policy for tax purposes.

3) The policyholder's basis is the total premiums paid minus the dividends.

4) The total surrender value is the net cash value plus the amount of any policy loan.

Question 11

A client has paid annual premiums of $2,000 for 10 years on a $100,000 whole life policy. The client took a loan of $10,000 from the policy, and the net cash value is $12,000. If the client surrenders the policy for cash, what amount of taxable income must the client report?

1) $2,000

2) $8,000

3) $12,000

4) $22,000

Question 12

If a beneficiary of a life policy has decided that the death benefit should be distributed under one of the settlement options, which of the following options will result in distributions containing the most taxable income?

1) Life-income option

2) Fixed-amount option

3) Interest-only option

4) Life-income option with refund feature

Question 13

In which of the following circumstances will the death benefit from a life insurance policy be included in the decedent-insured's gross estate?
I. The insured's estate is named as the beneficiary of the policy.
II. The insured sold the policy to an investor within 3 years of death.

1) I only

2) II only

3) Both I and II

4) Neither I nor II

Question 14

All of the following statements concerning a level-premium whole life insurance policy that is a MEC are correct, EXCEPT:

1) The policy is subject to LIFO tax treatment with respect to policy loans.

2) A taxable loan from the policy will increase the policy owner's basis.

3) During the first 7 years of the policy, the entire amount of a loan will be taxable.

4) A 10% penalty tax generally applies to a taxable loan if the policy owner is under age 591/2.

Question 15

Which of the following statements concerning the 1980 or 2001 CSO mortality tables is/are correct?
I. The table shows the same mortality rates for men as for women, age for age.
II. Most large life insurance companies base their premium rates on the mortality rates in this table.

1) I only

2) II only

3) Both I and II

4) Neither I nor II

Question 16

In a term-to-age-65 policy issued under the level premium plan of life insurance, which of the following statements is(are) correct?
I. The sum of the excesses in the premiums paid in the early policy years is equal to the sum of the deficiencies in the premiums paid in the later policy years.
II. The reserve under the policy rises for a time and then falls back to zero at age 65.

1) I only

2) II only

3) Both I and II

4) Neither I nor II

Question 17

Which of the following statements concerning the yearly renewable term plan of life insurance is(are) correct?
I. Insurers typically place a limit on the period during which YRT coverage may be renewed.
II. An insured who elects, after having renewed his or her YRT coverage for many years, to discontinue the coverage will have no cash values available under the policy at the time of discontinuance.

1) I only

2) II only

3) Both I and II

4) Neither I nor II

Question 18

All of the following statements concerning the proper estimation by an American insurance company of the probabilities of death among its insureds are correct, EXCEPT:

1) Experience should be observed for a period that is as recent as feasible.

2) The observation period should be free of catastrophic events, such as epidemics.

3) The group of people whose experience is observed should be closely representative of that of Americans in general.

4) The observation period should be long enough to produce a large volume of data.

Question 19

According to the theory of probability, which of the following statements when applied to a normal deck of 52 playing cards is/are correct?
I. The probability of drawing a club is 13/52.
II. The probability of drawing a card that is NOT an ace is 48/52.
III. The probability of drawing a card that is BOTH a club and an ace is 1/4 x 1/13.

1) I only

2) II only

3) Both I and II

4) Neither I nor II

Question 20

All of the following statements concerning life expectancy are correct, EXCEPT:

1) For most mortality tables, life expectancy is greatest at age one.

2) The life expectancy at a particular age is the average number of years of life remaining for a group that has attained that age.

3) The average age at death is the sum of the life expectancy and the number of years already lived.

4) Actuaries calculate life insurance premium rates on the basis of the insured's life expectancy.

Question 21

Which of the following statements correctly describe(s) the application of the law of large numbers to the flipping of a coin?
I. As the number of times a coin is flipped is increased, the number of times the result will be heads also increases.
II. As the number of times a coin is flipped is increased, the proportion of times the result will be heads will move steadily toward 50%.

1) I only

2) II only

3) Both I and II

4) Neither I nor II

Question 22

Graduation techniques are statistical methods used to accomplish which of the following?

1) Smoothing raw mortality data

2) Selecting the last age in the mortality table at which all insureds are assumed to be dead

3) Projecting raw mortality data into future time periods

4) Adding safety margins to raw mortality data

Question 23

The mortality rates in a typical mortality table in use today are based on which of the following?
I. The experience of more than one year
II. The experience of more than one insurance company

1) I only

2) II only

3) Both I and II

4) Neither I nor II

Question 24

Assume that a mortality table shows 1 million persons alive at age zero, 999,000 alive at age one, and 998,500 alive at age two. In this case, all of the following statements are correct, EXCEPT:

1) The radix of the mortality table is 1,500.

2) The probability of dying between age zero and age one is .001, or 1 in 1,000.

3) The probability of surviving from age zero to age two is .9985, or 99.85%.

4) The probability of dying between age zero to age two is .0015, or 1.5 in 1,000.

5) The probability of dying between age one and age two is .0005, or less than 1 per 1,000.

Question 25

The 1980 CET mortality table is characterized by which of the following?
I. It is designed for use with extended term insurance.
II. It is frequently used to value pension benefits.

1) I only

2) II only

3) Both I and II

4) Neither I nor II