Special Webinar Question: Life Insurance (Individual)

Posted by Adam Scherer, CFP®, MS

May 14, 2020

This question is a part of BIF's Special Webinar series which was created to help students affected by the July 2020 CFP® Exam postponement to September 2020.


Match the policy type to the correct description:

1. Term Life
A. Provides increased the opportunity for the cash value fund to grow, but with greater investment risk to the insured.
2. Universal Life
B. Characterized by long-term coverage, cash values, and high + level premiums.
3. Variable Life
C. Offers flexibility in premium payments and death benefit amount, transparency, lower costs, and cash value features.
4. Whole Life
D. A type of policy with low premiums that covers a set time period and promises to pay benefits only if the insured dies within that period.



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Correct answer:

1. Term Life
D. A type of policy with low premiums that covers a set time period and promises to pay benefits only if the insured dies within that period.
2. Universal Life
C. Offers flexibility in premium payments and death benefit amount, transparency, lower costs, and cash value features.
3. Variable Life
A. Provides increased the opportunity for the cash value fund to grow, but with greater investment risk to the insured.
4. Whole Life
B. Characterized by long-term coverage, cash values, and high + level premiums.



Instructor insight:

Term Life: The most affordable life insurance for younger individuals. Covers a set time period and promises to pay benefits only if the insured dies during the policy term.

Whole Life: As the name implies, provides coverage for the whole of the insured's life.

Universal Life: Pairs lower costs of term and the cash value features of whole life. Ability to adjust face amount and premium payments (with additional underwriting) offers flexibility to the insured.

Variable Life: Increased the opportunity for cash value fund to grow, but with greater investment risk to the insured.


CFP® Exam insight:

Extend your understanding of the life insurance policy types by reviewing CFP® Board's Contextual Variables and identifying the life phases, special circumstances, and financial situations in which any of the policy types would be an ideal risk management method.

 

Topics: Practice Questions