The major purpose of life insurance in estate planning is to provide funds to cover cash needs or liquidity arising at a person’s death. True False
Added by Patricia J.
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Life insurance is often used to provide financial support to beneficiaries after the policyholder's death. Show more…
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Universal life insurance combines elements from term and whole life insurance. Term policies provide a: Death benefit and a savings component Death benefit only Savings vehicle only Whole life policies provide a: Death benefit and a savings component with fixed rate features Savings vehicle only Death benefit and a savings component with variable rate features Universal policies provide a: Death benefit and a savings component with variable rate features Death benefit only Savings vehicle only To understand how universal premiums are allocated, consider the following example. Larry is a 40-year-old lawyer who just bought a universal life insurance policy to protect his two children (ages 11 and 13) in the event of his death. Each year, Larry chooses how much he would like to contribute to the policy, as shown in the first row of the following table. An administrative fee along with the cost of the death benefit (the portion of the policy) is the payment. The resulting amount goes into the pure insurance / savings added to / subtracted from cash-value (or portion of the policy). This money earns interest at a rate of savings / pure insurance market-based / fixed return. Based on the given information, calculate the amount that is added to the cash-value portion of the policy in each of the first three years. Year 1 Year 2 Year 3 Premium (Annual Contribution) $2,700 $2,200 $1,500 Administrative Fee 85 85 85 Cost of Death Benefit 100 100 100 Amount Added to Cash Value The cost of the death benefit portion of universal policies is only fixed for certain periods and rises with age, as is the case with life insurance policies. Suppose that in the 11th year of his policy, Larry's cost of death benefit term / whole has risen substantially. At the same time, he is helping to pay his mother's medical expenses after a major surgery and currently cannot afford to pay his life insurance premium. True or False: Under the terms of a standard universal policy, if Larry stops paying his premiums, then Larry's policy will be canceled, and the value of the cash portion will be paid out to him immediately. False True
Akash M.
1. In the family insurance market, people buy life insurance to protect survivors against what? a. the insured living too long b. the insured dying too soon c. natural disasters d. possible disability 2. In the family insurance market, what is life insurance usually purchased to replace? a. taking on risk b. long-term care c. replacing income lost from a disability d. the financial loss when a wage earner dies 3. For which of the following reasons do businesses often purchase life insurance? a. to start a new business b. to replace business income lost when a key employee dies c. to pay for the wedding expenses of executives' children d. to pay IRS liens 4. What should not be done with life insurance? a. sold strictly as an investment without regard to its death benefit component b. used by survivors to pay off existing debt c. used to pay ongoing living expenses of survivors d. used to pay for medical and funeral expenses of the deceased 5. What type of policy is different from a typical life insurance contract in that two lives are insured under the same policy? a. second-to-die b. participating c. nonparticipating d. whole life 6. What is the principal economic purpose of life insurance? a. to provide capital when needed at the insured's death b. to cancel policies c. to provide insurance protection on grandchildren d. to provide funding for alternate health care 7. What type of insurance is used to help businesses meet financial needs upon the death of a key employee? a. liability insurance b. life insurance c. casualty insurance d. medical insurance
If Jim wants to use the needs approach to help determine the amount of life insurance to purchase, he should do so by: Focusing on the investment return of the cash value Focusing on the financial needs of the insured's survivors Focusing on living needs of the insured as opposed to needs upon their death Focusing on the insureds future income that will be lost upon death
Aparna S.
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