Multiple Choice Questions. 1 In which of the following circumstances would a term life policy be paid out prior to the death of the insured?

Transcription

1 Multiple Choice Questions 2013 Reed International Books Australia Pty Limited trading as LexisNexis Permission to download and make copies for classroom use is granted. Reproducing or distributing any material from this website for any other purpose requires written permission from the Publisher. Chapter 15: Insurance Life 1 In which of the following circumstances would a term life policy be paid out prior to the death of the insured? A. The insured has suffered a heart attack or stroke B. The insured is suffering from a terminal illness with a life expectancy of less than two years C. The insured has been given less than 12 months to live by two medical practitioners, one of whom is a specialist D. The insured has been given a diagnosis of terminal cancer 2 Which of the following correctly explains a stepped premium? A. The premium remains constant throughout the period of the policy B. The premium charged represents the risk presented for the particular year and will generally increase annually upon renewal C. Surplus premium in early years is invested and used in later years to supplement later premiums paid D. During the early years, level premiums will be considerably cheaper than stepped 3 Which of the following would be excluded under a standard term life policy? A. Death by accidental drowning B. Death by suicide within 13 months of the issuance of the policy C. Death as a result of heart attack D. Death while travelling overseas 4 How is the sum insured calculated under the multiple approach? A. The net present value of the required income stream divided by the income required in year one B. Current income x (100 divided by the investment interest rate) Financial Planning in Australia 5e MCQs Chapter 15 Page 1

2 C. The investment interest rate divided by 100 D. The deceased s salary divided by the sum of estimated expenses post death 5 Calculate Ian s sum insured using the multiple of earnings approach. Ian s current income annual income is $ The investment interest rate is 6% pa. A. $7200 B. $ C. $1.5 million D. $ 2 million 6 How is the sum insured calculated under the needs approach? A. The amount needed for dependants to maintain their standard of living B. The current resources the dependants have to meet their needs C. The gap between needs of the dependants and current resources of the dependants D. The amount needed to dispose of all debts left by the deceased 7 Which of the following is an advantage of holding life insurance inside a superannuation fund? A. The premiums may be paid from tax-deductible contributions B. Less tax is payable on the proceeds when the policy is paid C. Trauma cover in superannuation generally includes a wider range of specified events D. Term life insurance in superannuation will always issue standard cover to a high-risk life insured 8 Which of the following is NOT one of the four strategies available for risk reduction? A. Eliminate the risk B. Ignore the risk C. Retain the risk D. Transfer the risk Financial Planning in Australia 5e MCQs Chapter 15 Page 2

3 9 Which of the following meets the first definition of total and permanent disablement (TPD)? A. Lucinda loses one leg in a traffic accident B. Peter suffers a severe brain injury after a stroke C. Antonio becomes permanently blind in both eyes after a workplace accident D. Timothy suffers burns to 20% of his body after a fire 10 Which of the following events is NOT likely to be covered by standard trauma policy wording? A. Heart attack B. Malignant cancer C. Stroke D. Chronic lung failure 11 Natasha has a medically certified paralysis attack. What must occur for Natasha to be paid benefits from her trauma policy? A. She cannot engage in any profession or business after the paralysis attack B. She is unable to recover from the paralysis attack C. The extent of disability after a paralysis attack is very severe D. The paralysis attack event 12 Which of the following offers the most restrictive wording for the payment of a TPD insurance policy from the perspective of the insured? A. Extent of injury does not allow the professional to continue in her own profession B. Extent of injury does not allow the professional to engage in any profession C. Extent of injury does not allow a professional to engage in her own, or a similar profession D. Extent of injury restricts the professional from engaging in her own profession but at a more junior level Financial Planning in Australia 5e MCQs Chapter 15 Page 3

4 13 Julia, aged 45, is the key business analyst at a boutique wealth creation fund. Her skills and knowledge are integral to the ongoing success of the fund and her absence would have a significant impact. Which of the following should the board of directors consider when examining the role of Julia in the organisation? A. Encourage Julia to take out her own term life insurance B. Take out key employee/key person insurance cover on Julia s life C. Ensure Julia has risk insurance cover through her superannuation fund D. Set aside a large cash reserve to draw upon were an event to occur that would result in Julia having to stop work 14 How is a children s trauma insurance policy structured? A. An optional extra on an adult s term life insurance policy B. Offered through an adult s superannuation group life insurance C. A stand-alone insurance product D. An optional extra on an adult s trauma insurance policy 15 What is the standard upper limit for a stand-alone trauma insurance policy? A. $ B. $ C. $2 million D. $3 million Financial Planning in Australia 5e MCQs Chapter 15 Page 4

5 Answer Grid for Chapter C 2. B 3. B 4. C 5. D 6. C 7. A 8. B 9. C 10. D 11. D 12. B 13. B 14. D 15. B Financial Planning in Australia 5e MCQs Chapter 15 Page 5