ChFC Insurance Planning Practice Questions

Correct answer: D. The human life value approach

The human life value approach estimates the economic value of the insured's future earning capacity, discounted to present value, as the basis for the insurance need. The needs approach instead itemizes specific future expenses (income replacement, debts, education, final expenses) rather than capitalizing earnings.

• A. The needs approach sums specific dollar needs (income replacement, debt payoff, education, final expenses), rather than capitalizing projected future earnings.
• B. The debt-liquidation approach sizes coverage to pay off outstanding debts, unrelated to capitalizing the insured's projected career earnings.
• C. The capital retention (capitalization of income) approach preserves principal to generate ongoing income for survivors; it's a different methodology from projecting and discounting the insured's own future earnings.
• D. Correct. The human life value approach estimates life insurance need by projecting the insured's future after-tax earnings over their remaining working years and discounting that stream to present value.

Correct answer: C. Life income with period certain

'Life income with period certain' pays for the beneficiary's lifetime but guarantees a minimum payment period, with any remaining guaranteed payments going to a secondary beneficiary if the primary beneficiary dies early — matching both features described in the stem.

• A. The interest-only option leaves the principal death benefit intact with the insurer paying only interest — it doesn't involve lifetime payments or a period-certain guarantee.
• B. The fixed-period option pays over a selected number of years regardless of how long the beneficiary lives; it isn't based on her life expectancy and has no lifetime income feature.
• C. Life income with period certain pays income for the beneficiary's lifetime while guaranteeing a minimum number of payments, with any remaining guaranteed payments going to a secondary beneficiary if she dies early — matching both features described.
• D. The fixed-amount option pays a set dollar amount until the proceeds (plus interest) are exhausted, which is duration-of-funds-based rather than lifetime-based with a period-certain guarantee.

Correct answer: C. Term life

Term life insurance provides pure death-benefit protection for a defined period (e.g., 10, 20, or 30 years) with no cash value component, which is why its initial premiums are typically the lowest among life insurance products for a comparable death benefit.

• A. Whole life is permanent coverage with guaranteed cash value accumulation, not a specified-period product.
• B. Universal life is permanent, flexible-premium coverage with a cash value account, not a term product.
• C. Correct — term life matches all three described features: temporary coverage, no cash value, low initial premium.
• D. Variable universal life is permanent coverage with a cash value account invested in subaccounts; it is not a term product.

Correct answer: C. Deny the death benefit claim but refund all premiums paid to the beneficiary

The standard suicide clause excludes coverage for death by suicide within a specified period (typically two years) from issue. Because death occurred at month 13 — within that two-year window — the insurer denies the death benefit but is required to refund the premiums paid, since it never truly accepted the mortality risk for that cause of death during the exclusion period. This is a distinct provision from the incontestability clause, which addresses material misrepresentation on the application rather than cause of death.

• A. The two-year suicide exclusion is still in force at 13 months, so the death benefit is not paid as contracted.
• B. There is no standard 50% compromise payout under a suicide exclusion clause; the benefit is denied and premiums are returned.
• C. Because death by suicide occurred within the two-year exclusion period, the insurer denies the death benefit but, consistent with the contract's terms, refunds the premiums paid.
• D. Suicide within the exclusion period doesn't void the entire contract or let the insurer keep the premiums — premiums are returned to the beneficiary.