Quiz: What's Your Life Insurance IQ?

True or False

1. Beneficiaries don't have to pay taxes on the death benefit. (True / False)

2. The primary reason life insurance companies collect medical information is to document pre-existing conditions when a claim is submitted. (True / False)

3. Life insurance basically involves paying money to an insurance company each year so the company can invest the money and pay your heirs when you die. (True / False)

4. A group life policy provided by your employer will stay in effect if you leave your job. (True / False)

5. If an insurance company goes bankrupt, the policies are canceled and the policyholders lose their benefit. (True / False)

6. In a variable or variable universal life policy, the policyholder bears the risk of the investment. (True / False)

Choose whether the following statements apply to permanent or term life insurance:

7. This type of policy initially has a higher premium for the same amount of coverage. (Permanent / Term)

8. This type of coverage is appropriate when you have a specific need for life insurance that will go away in time. (Permanent / Term)

9. This type accumulates a cash value that you can borrow against. (Permanent / Term)

10. If kept indefinitely, the premium for this type of policy would eventually increase. (Permanent / Term)

 

 

 

 

 

Answers:

1. Beneficiaries don't have to pay taxes on the death benefit. (True, 31% )

2. The primary reason life insurance companies collect medical information is to document pre-existing conditions when a claim is submitted. (False, 18% -- Companies collect this information to get an idea of when you might die in order to determine how much to charge you. The sooner you might die, the sooner they must pay and the more they will charge.)

3. Life insurance basically involves paying money to an insurance company each year so the company can invest the money and pay your heirs when you die. (True, 68%)

4. A group life policy provided by your employer will stay in effect if you leave your job. (False, 59%)

5. If an insurance company goes bankrupt, the policies are canceled and the policyholders lose their benefit. (False, 25% -- State guarantee funds exist to maintain at least some of the coverage you had. Details vary depending on the type of policy you owned, the nature of the insurer's insolvency, the state where you live and other factors. Never allow an insurance agent to claim that a state fund renders your policy "guaranteed.")

6. In a variable or variable universal life policy, the policyholder bears the risk of the investment. (True, 33%)

Choose whether the following statements apply to permanent or term life insurance:

7. This type of policy initially has a higher premium for the same amount of coverage. (Permanent, 41%)

8. This type of coverage is appropriate when you have a specific need for life insurance that will go away in time. (Term, 52%)

9. This type accumulates a cash value that you can borrow against. (Permanent, 45%)

10. If kept indefinitely, the premium for this type of policy would eventually increase. (Term, 31%)

Originally published in Inside Personal Finance September 2013

 

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