CLU Fundamentals of Insurance Planning Practice Questions
Question 1
The 'human life value' approach to determining an individual's life insurance need is based primarily on:
- A. The present value of the insured's future net earnings that would otherwise be available to support dependents
- B. The total face amount of insurance the insured can medically qualify for
- C. The insured's current outstanding debts and funeral expenses only
- D. The cash surrender value of the insured's existing policies
Show answer and explanation
Correct answer: A. The present value of the insured's future net earnings that would otherwise be available to support dependents
The human life value approach estimates the economic value of the insured to their dependents by calculating the present value of the insured's expected future earnings (net of personal consumption, taxes, and other adjustments) over the insured's remaining working years. It is one of the earliest and most conceptually simple methods for estimating life insurance need, though it is often supplemented or replaced in practice by the more detailed needs approach.
- A. Correct — human life value is fundamentally a present-value-of-future-earnings calculation.
- B. Incorrect — this describes underwriting/amount-of-insurance limits, not human life value.
- C. Incorrect — this narrow debt/expense focus describes one piece of the needs approach, not human life value.
- D. Incorrect — cash surrender value is unrelated to the human life value calculation.
Question 2
A client enrolls in a qualifying high-deductible health plan (HDHP) and wants to open and fund a Health Savings Account (HSA). She is also covered as a dependent under her spouse's employer plan, which includes a general-purpose health FSA that reimburses any medical expense for the whole family. What is the most accurate assessment of her HSA eligibility?
- A. She is eligible because her own coverage is a qualifying HDHP, and a spouse's separate employer plan is not counted when determining her eligibility, even if it reimburses her medical expenses
- B. She is eligible because a dependent's HSA eligibility depends on her own plan, not on health FSA elections made by the primary policyholder
- C. She is eligible if she does not file a claim under the spouse's FSA during the year and keeps her HSA contributions within the family limit
- D. She is not eligible, because her spouse's general-purpose health FSA is disqualifying 'other coverage' that pays medical expenses before the HDHP deductible is met
Show answer and explanation
Correct answer: D. She is not eligible, because her spouse's general-purpose health FSA is disqualifying 'other coverage' that pays medical expenses before the HDHP deductible is met
HSA eligibility requires that the individual have no disqualifying non-HDHP coverage, and a spouse's general-purpose health FSA that can reimburse the family's medical expenses counts as disqualifying coverage even if she never personally submits a claim — availability of the coverage is what matters, not use. A limited-purpose (dental/vision) or post-deductible FSA would not disqualify her, but a general-purpose one does.
- A. Her own HDHP coverage isn't the whole picture; disqualifying 'other coverage' reaching her through her spouse's plan still breaks HSA eligibility, even when it reimburses her medical expenses.
- B. A general-purpose FSA covering the whole family extends disqualifying coverage to her as a covered dependent, so the policyholder's election does affect her eligibility.
- C. Eligibility turns on whether disqualifying coverage exists, not on whether she personally submits a claim or on how much she contributes.
- D. A general-purpose health FSA that reimburses the whole family's medical expenses before the deductible is met counts as disqualifying other coverage for any family member covered by it, including her.
Question 3
Which of the following is NOT a factor underwriters consider in classifying an applicant's mortality risk?
- A. Tobacco use and nicotine product history
- B. Family history of heart disease or cancer
- C. Hazardous avocations, such as skydiving
- D. Applicant's political party affiliation
Show answer and explanation
Correct answer: D. Applicant's political party affiliation
Underwriters classify mortality risk using verifiable factors demonstrably correlated with life expectancy: tobacco use, family medical history, hazardous occupations/avocations, current health, and build, among others. Political affiliation has no actuarial or legal basis for underwriting and using it would also raise serious legal and ethical concerns.
- A. Tobacco and nicotine use is a standard factor underwriters use to classify mortality risk.
- B. Family history of conditions such as heart disease or cancer is a standard factor used to assess hereditary risk.
- C. Hazardous avocations such as skydiving are a standard factor underwriters weigh in risk classification.
- D. Political party affiliation has no bearing on mortality risk and is not a factor underwriters consider.
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A couple considers three-year versus six-year long-term-care benefit periods with equal daily benefits. Which analysis is best?
- A. Select six years because the longer period costs the same premium as three years when daily benefits are equal
- B. Assess tail-duration care costs, family resources and affordability rather than assuming either term always wins
- C. Disregard inflation protection and daily benefit limits since the benefit period drives the total benefit
- D. Select three years because few claims last longer than that and tail costs are covered by Medicare
Show answer and explanation
Correct answer: B. Assess tail-duration care costs, family resources and affordability rather than assuming either term always wins
Benefit period affects protection against long, costly claims and premium, and interacts with inflation protection and the family's own resources. The right choice comes from analyzing those factors, not from a fixed rule.
- A. A longer benefit period raises premium; it is not priced the same as a shorter one.
- B. Correct: the decision balances tail-risk protection against premium affordability and available resources.
- C. Inflation protection and the daily benefit limit materially affect how far benefits go and cannot be set aside.
- D. Some claims run longer than three years, and Medicare generally does not pay for long-term custodial care.