THE AMERICAN COLLEGE
INSURANCE PRACTICE
TEST 100 QUESTIONS
Question 1: A client wants to estimate the economic value of future earnings that would be lost if a wage earner died today. Which method is most directly designed for this purpose?
Choices:
1) Human life value approach 2) Capital retention approach 3) Premium comparison approach 4) Estate equalization approach
Correct Answer: Human life value approach
Explanation: The human life value approach estimates the present value of the insured's future economic contributions, typically after adjustments for taxes and personal consumption.Page 1
Question 2: In a needs analysis, a family has $480,000 of total capital needs and $135,000 of available �nancial resources that would remain after death. Ignoring other adjustments, how much additional life insurance is indicated?
Choices:
1) $135,000
2) $480,000
3) $615,000
4) $345,000
Correct Answer: $345,000
Explanation: $480,000 - $135,000 = $345,000 of additional life insurance need.
Question 3: Which item is normally treated as an immediate cash need when
determining a family's life insurance requirement?
Choices:
1) Final expenses and outstanding debts 2) The insurer's statutory reserve 3) Future premiums on the proposed policy 4) The insured's future personal consumption
Correct Answer: Final expenses and outstanding debts
Explanation: Final expenses and debts create cash demands at death and are therefore commonly included among immediate capital needs.Page 2
Question 4: A planner uses a capital retention approach to fund survivor income.What is the central assumption of this approach?
Choices:
1) Life insurance proceeds must be invested in the insurer's general account 2) Principal must be fully spent during the �rst year 3) The income need is met largely from investment earnings while principal is preserved 4) Only Social Security bene�ts may be used Correct Answer: The income need is met largely from investment earnings while principal is preserved Explanation: The capital retention approach seeks to preserve principal and use investment earnings to support the survivor's income need.Question 5: Which risk characteristic is most important for a loss exposure to be well suited to private insurance?
Choices:
1) The insured should be able to control the timing of the loss 2) The loss amount should be impossible to estimate 3) The loss should be certain to occur during the policy year 4) The loss should be fortuitous from the insured's standpoint
Correct Answer: The loss should be fortuitous from the insured's standpoint
Explanation: Insurance is designed primarily for fortuitous losses rather than losses that are certain or deliberately controlled by the insured.Page 3