Risk & management Insurance

Decide whether each question is true or false.

1. According to buy-term-and-invest-the-difference (BTID) strategy, individual should purchase cash value life insurance instead of a lower-premium term policy and separately invests the difference between the two policies premiums.

2. Moral hazard is tendency of people who are less than standard risks to seek insurance to a greater extent than others

3. There are 3 parties in the life insurance contract: the insurer, the insured, and the insurance agent.

4. The agency problem means the interests of one party (the agent) differ from those of the party that it represents (the principal)

5. Misstatement of ages provision stipulates that if the insureds age is found to have been misstated, the policy will be voided since age is a material factor in life insurance underwriting.

6. Life insurance takes care of both mortality risk and longevity risk.

7. All life insurance products include nonforfeiture provisions.

8. Reinstatement is always preferred over purchasing a new policy.

9. Participating policies (par policies) are more closely associated with stock life insurance companies whereas nonpar policies are more closely associated with mutual life insurance companies.

10. Compared with the universal life (UL) policies, the variable life (VL) policies are unbundled policies with premium flexibility and death benefit adjustability.