RMI3011-3

RMI3011

Exam 3

Review Sheet

Chapter 16

Life insurance is intended to protect against what risk? What does the term “premature death” mean?

1. Life insurance is meant to protect people from premature death

2. Premature death means death with outstanding unfulfilled financial obligations

What is a “blended” family? What is a “traditional” family? What is a “sandwiched” family? What type of family requires little to no life insurance? Why?

1. Blended family – widow or widower or divorcee marries and have kids from previous marriage

2. Traditional family – two parents with two kids one parent work and the other stays home

3. Sandwiched family – parents taking care of children and their own parents

4. Two income family – when both parents work

5. Single people are virtually the only people that do not need life insurance because they have no one depending on their income

What is the difference between the human life value approach and the needs approach? Which is more complicated mathematically?

1. Human value life approach –

a. estimate annual earnings for the individual

b. Calculate dependents share by subtracting

i. Taxes

ii. Premiums

iii. Cost of self maintenance

c. Determine number of years to retirement

d. Calculate present value of annuity for dependent’s share of individual’s earnings

2. Needs approach

a. Amount of insurance necessary depends on the existence and extent of certain needs

i. Estate clearance fund

ii. Income to family during dependency period

iii. Life income to surviving spouse

iv. Mortgage redemption, education fund, emergency fund

v. Retirement needs

3. The needs approach is more complicated to calculate

How does yearly renewable term insurance differ from the level premium method? What happens as a result of the level premium method? What is the difference between the legal reserve and cash value?

1. Yearly renewable term insurance

a. Provides insurance for one year only

b. Renewable each year without evidence of insurability

c. Pure premium is determined by mortality rates

2. Level premium (for life) method

a. Premiums remain the same from year to year

b. Early premiums are higher than pure premiums and later premiums are insufficient

c. Legal reserve

d. Cash values

3. Legal reserve is the difference between the level premium and mortality cost. The cash value is the part of legal reserve that ‘belongs’ to the insured

Chapter 17

Between term and cash-value insurance, which type of policy buys the most coverage for a fixed dollar amount?

Term insurance buys more coverage for a fixed amount.

When is term insurance appropriate? When is cash-value insurance appropriate?

1. Term insurance is appropriate when

a. There is a limited dollars to spend on life insurance

b. Need is temporary

c. The insured is preserving insurability with the intention of conversion to permanent policy later

2. Cash value is appropriate when

a. Entire life period insurance is needed

b. Continuous need

c. Insured can afford it

d. Accumulated cash value is desired



	RMI3011 RMI3011 Exam 3 Review Sheet Chapter 16 Life insurance is intended to protect against what risk? What does the term “premature death” mean? 1. Life insurance is meant to protect people from premature death 2. Premature death means death with outstanding unfulfilled financial obligations What is a “blended” family? What is a “traditional” family? What is a “sandwiched” family? What type of family requires little to no life insurance? Why? 1. Blended family – widow or widower or divorcee marries and have kids from previous marriage 2. Traditional family – two parents with two kids one parent work and the other stays home 3. Sandwiched family – parents taking care of children and their own parents 4. Two income family – when both parents work 5. Single people are virtually the only people that do not need life insurance because they have no one depending on their income What is the difference between the human life value approach and the needs approach? Which is more complicated mathematically? 1. Human value life approach – a. estimate annual earnings for the individual b. Calculate dependents share by subtracting i. Taxes ii. Premiums iii. Cost of self maintenance c. Determine number of years to retirement d. Calculate present value of annuity for dependent’s share of individual’s earnings 2. Needs approach a. Amount of insurance necessary depends on the existence and extent of certain needs i. Estate clearance fund ii. Income to family during dependency period iii. Life income to surviving spouse iv. Mortgage redemption, education fund, emergency fund v. Retirement needs 3. The needs approach is more complicated to calculate How does yearly renewable term insurance differ from the level premium method? What happens as a result of the level premium method? What is the difference between the legal reserve and cash value? 1. Yearly renewable term insurance a. Provides insurance for one year only b. Renewable each year without evidence of insurability c. Pure premium is determined by mortality rates 2. Level premium (for life) method a. Premiums remain the same from year to year b. Early premiums are higher than pure premiums and later premiums are insufficient c. Legal reserve d. Cash values 3. Legal reserve is the difference between the level premium and mortality cost. The cash value is the part of legal reserve that ‘belongs’ to the insured Chapter 17 Between term and cash-value insurance, which type of policy buys the most coverage for a fixed dollar amount? Term insurance buys more coverage for a fixed amount. When is term insurance appropriate? When is cash-value insurance appropriate? 1. Term insurance is appropriate when a. There is a limited dollars to spend on life insurance b. Need is temporary c. The insured is preserving insurability with the intention of conversion to permanent policy later 2. Cash value is appropriate when a. Entire life period insurance is needed b. Continuous need c. Insured can afford it d. Accumulated cash value is desired