Sample Questions
Question 1
Easy
Which of the following is NOT a type of long-term health insurance?
Solution
C is correct.
Personal auto liability is a short-term P&C coverage, not long-term health insurance.
The answer is personal auto liability.
Personal auto liability is a short-term P&C coverage, not long-term health insurance.
The answer is personal auto liability.
Question 2
Medium
A creditor has loaned $200,000 to a business. To protect against the debtor's death, the creditor purchases a life insurance policy on the debtor with a face amount of $300,000.
Which of the following statements is most accurate?
Which of the following statements is most accurate?
Solution
E is correct.
In practice, the rules regarding the extent of a creditor's insurable interest vary by jurisdiction. However, the general principle is:
**A creditor has insurable interest in a debtor's life.** While some jurisdictions may limit the insurable interest to the amount of the debt, many jurisdictions allow a policy with a face amount exceeding the debt, recognizing that:
- The debt may grow with interest
- There are costs of collection and replacement financing
- Life insurance is not treated as an indemnity contract (unlike property insurance)
For exam purposes, the standard teaching is that **life insurance policies are generally valid for the full face amount** once insurable interest exists at inception, even if the face amount exceeds the financial interest.
In practice, the rules regarding the extent of a creditor's insurable interest vary by jurisdiction. However, the general principle is:
**A creditor has insurable interest in a debtor's life.** While some jurisdictions may limit the insurable interest to the amount of the debt, many jurisdictions allow a policy with a face amount exceeding the debt, recognizing that:
- The debt may grow with interest
- There are costs of collection and replacement financing
- Life insurance is not treated as an indemnity contract (unlike property insurance)
For exam purposes, the standard teaching is that **life insurance policies are generally valid for the full face amount** once insurable interest exists at inception, even if the face amount exceeds the financial interest.
Question 3
Hard
A whole life policy with face amount 200,000 is issued to (40). It includes a double indemnity rider paying an additional 200,000 on accidental death before age 65. You are given:
, ,
Calculate the level annual net premium for the combined coverage.
, ,
Calculate the level annual net premium for the combined coverage.
Solution
E is correct.
APV of total benefits:
1. Base whole life:
2. Double indemnity rider:
Total APV:
Level annual net premium:
The answer is 1,890.
APV of total benefits:
1. Base whole life:
2. Double indemnity rider:
Total APV:
Level annual net premium:
The answer is 1,890.
