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FP1 / Practice Exam 2 Questions and Answers (100% Pass)
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FP1 / Practice Exam 2 Questions and Answers (100% Pass)
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©PREP4EXAMS@2024/2025 [ REAL-EXAM-DUMPS] Monday, August 5, 2024 1: 54 PMWEST VIRGINIA UNIVERSIRTY-WV26506
FP1 / Practice Exam 2 Questions and Answers (100% Pass)
Vivian buys a life insurance policy in which the insurer pays policyholders dividends
based on how well the life insurer is doing. If the insurer is profitable, Vivian will receive
dividends. If the insurer underperforms financially, Vivian and other policyholders will
receive fewer dividends. Indicate the type of insurance policy Vivian purchased.
A. Variable life insurance.
B. Participating life insurance.
C. Limited-pay life insurance.
D. Non-participating life insurance - ✔️✔️B. Participating life insurance.
Choose the type of insurance that combines term and whole life for a predetermined
contract period and guarantees a sum of money for either the beneficiar(ies) or at the
end of the term for the contract holder.
A. Variable life insurance.
B. Universal life Insurance.
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,©PREP4EXAMS@2024/2025 [ REAL-EXAM-DUMPS] Monday, August 5, 2024 1: 54 PM
WEST VIRGINIA UNIVERSIRTY-WV26506
C. Permanent life Insurance.
D. Endowment life insurance. - ✔️✔️D. Endowment life insurance.
Endowment life insurance is a combination of term life and whole life. It provides
coverage for a specified period of time (usually to age 65) and builds cash value. If the
insured should die during the period of coverage, the beneficiary receives the face
amount of coverage. If the insured does not die during the period of coverage, the policy
owner receives the entire face value of the policy as a cash payment and the insurance
coverage ceases. Reference: Module 4, Section 2.
Select the type of insurance that can be extended, at the option of the policyholder, at
the end of the term without medical evidence of insurability.
A. Level term insurance.
B. Decreasing term insurance.
C. Convertible term insurance.
D. Renewable term insurance. - ✔️✔️D. Renewable term insurance.
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Renewable term insurance allows for the policy to be extended for another term of
equal length without the insured having to provide medical evidence of insurability.
Henry, a 48 year-old director of engineering at an environmental firm, has $50,000 in
Canada Savings Bonds on which he earns 3% interest annually. He has paid off the
mortgage on his house but he has an outstanding $30,000 bank loan (taken out for
home improvements) on which he pays 6% interest. His marginal tax rate is 50%.
Select the action an advisor is most likely to recommend to Henry?
A. Cash in $30,000 of CSBs and pay off the bank loan. 0%
B. Don't do anything; let the situation remain as it is.
C. Cash in $30,000 of CSBs and pay off the bank loan, then borrow $30,000 and invest
it in a conservative balanced fund.
D. Cash in $30,000 of CSBs and pay off the bank loan, then borrow $50,000 and invest
it in an aggressive equity fund. - ✔️✔️C. Cash in $30,000 of CSBs and pay off the bank
loan, then borrow $30,000 and invest it in a conservative balanced fund.
The most likely recommendation involves paying off the bank loan by cashing in CSBs
and then borrowing the previous loan amount and investing it so that interest on the
new loan becomes tax deductible. While borrowing more than the previous loan amount
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