L06 Pricing and Valuation in Life Insurance MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on L06 Pricing and Valuation in Life Insurance, a fundamental topic in the field of IC38 Life Insurance Agent Exam. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our L06 Pricing and Valuation in Life Insurance MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of L06 Pricing and Valuation in Life Insurance mcq questions that explore various aspects of L06 Pricing and Valuation in Life Insurance problems. Each MCQ is crafted to challenge your understanding of L06 Pricing and Valuation in Life Insurance principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC38 Life Insurance Agent Exam tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our L06 Pricing and Valuation in Life Insurance MCQs are your pathway to success in mastering this essential IC38 Life Insurance Agent Exam topic.

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L06 Pricing and Valuation in Life Insurance MCQs | Page 3 of 6

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Q21.
How does the present value of a future premium payment change with different assumed interest rates?

a.

The present value is not affected by the assumed interest rate

b.

The present value increases as the assumed interest rate increases

c.

The present value decreases as the assumed interest rate increases

d.

The present value is always the same, regardless of the interest rate

Discuss
Answer: (c).The present value decreases as the assumed interest rate increases Explanation:The present value of a future premium payment decreases as the assumed interest rate increases.
Q22.
What is the "Net Premium" in the context of life insurance?

a.

The premium paid by policyholders after accounting for all expenses

b.

The premium charged before considering expenses and loading

c.

The premium calculated based on mortality and interest rates

d.

The premium paid for insurance policies with the highest sum assured

Discuss
Answer: (b).The premium charged before considering expenses and loading Explanation:The "Net Premium" in life insurance is the premium charged before considering expenses and loading.
Q23.
What does the term "loading" refer to in the calculation of gross premium in life insurance?

a.

The extra premium charged for policies with high cash values

b.

The premium paid by policyholders after accounting for all expenses

c.

The amount added to the net premium to cover operating expenses and other costs

d.

The premium calculated based on mortality and interest rates

Discuss
Answer: (c).The amount added to the net premium to cover operating expenses and other costs Explanation:"Loading" in the calculation of gross premium in life insurance refers to the amount added to the net premium to cover operating expenses and other costs.
Q24.
What are some examples of operating expenses incurred by life insurance companies that are considered when determining the amount of loading?

a.

Agent training and recruitment, commissions of agents, and staff salaries

b.

The policy's cash value, bonus, and dividends

c.

Sum assured, premiums, and policy duration

d.

Mortality rates and interest rates

Discuss
Answer: (a).Agent training and recruitment, commissions of agents, and staff salaries Explanation:Operating expenses incurred by life insurance companies, such as agent training and recruitment, commissions of agents, and staff salaries, are considered when determining the amount of loading.
Q25.
What are the two major conclusions that can be derived from the study of mortality and interest rates in life insurance?

a.

Higher interest rates lead to higher premiums, and higher mortality rates lead to lower premiums

b.

Higher interest rates lead to lower premiums, and higher mortality rates lead to lower premiums

c.

Higher interest rates lead to higher premiums, and higher mortality rates lead to higher premiums

d.

Higher interest rates lead to lower premiums, and higher mortality rates lead to higher premiums

Discuss
Answer: (b).Higher interest rates lead to lower premiums, and higher mortality rates lead to lower premiums Explanation:The two major conclusions are that higher interest rates lead to lower premiums, and higher mortality rates lead to lower premiums.
Q26.
What is a "lapse" in the context of life insurance?

a.

The act of discontinuing payment of premiums

b.

The act of withdrawing the policy and receiving the cash value

c.

The act of increasing the sum assured

d.

The act of surrendering the policy to the insurer

Discuss
Answer: (a).The act of discontinuing payment of premiums Explanation:In the context of life insurance, a "lapse" refers to the act of discontinuing payment of premiums by the policyholder.
Q27.
When do lapses typically occur in life insurance policies?

a.

Lapses occur mainly in the later years of the policy

b.

Lapses are evenly distributed throughout the policy term

c.

Lapses usually happen within the first three years, especially in the first year of the contract

d.

Lapses typically occur when policyholders retire

Discuss
Answer: (c).Lapses usually happen within the first three years, especially in the first year of the contract Explanation:Lapses usually happen within the first three years, especially in the first year of the contract in life insurance.
Q28.
What happens in the event of a policy "withdrawal" in life insurance?

a.

The policyholder increases the sum assured

b.

The policyholder discontinues payment of premiums

c.

The policyholder surrenders the policy and receives the cash value

d.

The policyholder receives additional benefits from the insurer

Discuss
Answer: (c).The policyholder surrenders the policy and receives the cash value Explanation:In the event of a policy "withdrawal" in life insurance, the policyholder surrenders the policy and receives the cash value.
Q29.
What is the concept of "With Profit" policies in life insurance?

a.

Policyholders receive no bonuses or additional benefits

b.

Policyholders receive a guaranteed fixed premium

c.

Policyholders share in the insurer's profits through bonuses

d.

Policyholders pay reduced premiums over time

Discuss
Answer: (c).Policyholders share in the insurer's profits through bonuses Explanation:"With Profit" policies in life insurance allow policyholders to share in the insurer's profits through bonuses.
Q30.
Why did life insurers start the practice of offering "With Profit" policies?

a.

To reduce the premiums charged to policyholders

b.

To create a financial buffer to keep them solvent in adverse situations

c.

To offer higher cash values to policyholders

d.

To increase the policy's sum assured

Discuss
Answer: (b).To create a financial buffer to keep them solvent in adverse situations Explanation:Life insurers started the practice of offering "With Profit" policies to create a financial buffer to keep them solvent even in adverse situations.
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