Free SOA Exam FAM (Fundamentals of Actuarial Mathematics) Long-Term Insurance Coverages and Retirement Financial Security Programs Practice Questions

C is correct.

Personal auto liability is a short-term P&C coverage, not long-term health insurance.

The answer is personal auto liability.

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.

E is correct.

APV of total benefits:
1. Base whole life: $200{,}000 \times 0.16132 = 32{,}264$
2. Double indemnity rider: $200{,}000 \times 0.00480 = 960$

Total APV: $32{,}264 + 960 = 33{,}224$

Level annual net premium:
$$P = \frac{33{,}224}{17.577} = 1{,}889.7 \approx 1{,}890$$

The answer is 1,890.