Personal Finance Exam 3

The purpose of ___________ is to ensure you do not eave your estate in debt (financially ensure the people you leave behind).

life insurance

This life insurance method adds up all of your expenses and divides it by half to see the amount of life insurance you will need.

DINK (dual income no kids)

What is the important assumption of the DINK method for life insurance?

parents make the same income

The __________________ method of calculating life insurance multiplies the number of years before the youngest reaches 18 by $10k.

Non-working spouse

((18 - age) x $10k)

The _____________ method of calculating life insurance considers what your family would be short in income in the event of your death.

family need

This type of life insurance is protection for a specified period of time. It only pays a benefit if you die during the period it covers. If you stop paying premiums, then the insurance stops.

term

What are the five different types of term insurance?

renewable,

convertible,

decreasing,

multiyear level,

return of premium

This type of term insurance will refund the money you paid in premiums if you outlive the (15/20/30) year term of the policy, but costs 30-50% more than normal policies.

return of premium

This type of term insurance keeps premiums the same during the term or contract period.

multiyear level

Whole life insurance can build ______________.

cash value

What are the four different type of permanent life insurance?

limited payment,

variable life,

adjustable life,

universal life

In _______________ permanent life insurance, companies will collect the total amount of premiums in a shorter amount of time to stop payments at a certain date (monthly premiums go up).

limited payment

In _______________ life insurance, the policy fluctuates according to yields earned by a separate fund such as bond, stock, or money market fund.

variable

_______________ is a whole life policy that combines term insurance and investment elements.

universal

(flexible premiums)

A ____________ insurance plan insures a large number of people under the terms of a single policy. Cost is split between an employer and employees so that the cost of insurance is the same for each employee, regardless of age.

group

_______________ life insurance provides coverage from the beginning of the contract to maturity and guarantees payment of a specified sum to the insured, even if he/she is still living at the end of the contract period.

endowment

____________ life insurance is used to repay a personal debt should the borrower die before doing so.

credit

Which insurance is better in term for insuring auto loans or home mortgages: credit life or decreasing term?

decreasing term

The ______________ clause is a provision in life insurance that states whatever you have paid/earned in the life insurance will not be lost if you end the life insurance at the time.

non-forfeiture

The ______________ clause is a provision in life insurance that states that insurance companies cannot contest the policy because you are not there to defend yourself.

incontestability

A _____________ is any document attached to the life insurance policy that modifies its coverage by adding/excluding specified conditions or altering its benefits.

rider

_____________ is a rider to life insurance policies that state that the insurer has pay twice the face value of the policy if the insured's death results from an accident.

double indemnity (accidental death benefit)

_______________ is a rider to life insurance that prevents inflation from eroding the purchasing power of the protection of the policy.

cost of living protection

_______________ are riders in a life insurance policy that pay the terminally ill policyholders before he/she dies.

accelerated benefits

A _________________ insurance policy insures two lives, usually husband and wife, where the death benefit is paid when the second spouse dies.

second to die

________________ is an annuity or a financial contract written by an insurance company that provides a regular income. Can be immediate or deferred.

life income option

_______________ is defined by diversification of your investments.

asset allocation

When you buy stocks in a company, you are buying _____________.

equity

What are the two important factors to consider when investing?

time, age

When you buy a bond, you are buying ______.

debt

What do mutual funds consist of?

stocks, bonds

(based on growth)

___________ is when the bank is paying you monthly for your home. The estate has to pay back the bank everything borrowed plus interest.

RAM (reverse annuity mortgage)

How many quarters must you work before you are eligible for social security?

40 (10 years)

What is the earliest age you can apply for social security?

62

What are the 3 things you need to apply for social security?

birth certificate (proof of age),

social security card/#,

tax returns (past 2 years)

Does SS tax your SS benefits?

No, but up to 85% can be taxable based on AGI

T/F: SS takes back the payment you receive the month you die.

T

What is the maximum contribution you can put in a tax sheltered annuity?

$19k (pre-tax contributions)

A ___________________ specifies the benefits the employee will receive at the normal retirement age.

defined-benefits plan

The ________________ plan, also known as the educational IRA, is used to set aside money for kids to go to school (K - college).

529

A ______________ IRA lets you contribute up to a certain amount on behalf of your nonworking spouse if you file a joint tax return.

spousal

A ________________ plan is simply an IRA funded by the employer.

SEP-IRA (simplified employee pensions - iRA).

___________________IRA can be deducted from taxes (makes AGI smaller), bu pay taxes when you draw it out. ____________ IRA is the opposite where we do not have to deduct from taxes.

traditional, roth

__________________ is a definite plan for the administration and disposition of your property at the time of your death.

estate planning

A ____________ is a legal declaration of a person's mind as to the disposition of his or her property after death.

will

Dying without a valid will or trust is known as ______________.

intestate

Provisions favoring a ______________ are automatically revoked in a will during a divorce.

former spouse

(ex's family can still be in will)

A ______________ is the legal procedure of proving a valid or invalid will.

probate

Which type of Will leaves everything to the spouse?

Simples Will (I love you Will)

Which type of Will leaves half of the adjusted gross estate (gross estate - debts/costs) to the spouse?

traditional marital share will

Which type of Will passes everything down to spouse except for the amount equal to the exemption?

exemption trust will

Which type of Will passes to your spouse an amount that you stated?

stated dollar amount

Which type of Will passes on your valuable and beliefs to your heirs (not legally binding)?

ethical will

A ______________ Will closes your social media accounts.

social media

The _______________ is the person you select to administer your will/estate.

executor

This format of Wills means that it is handwritten.

holographic

This format of Wills is a preprinted form for you to fill in.

statutory

This format of Wills is prepared by an attorney and signed by you and two other witnesses (must name beneficiaries)/

formal

What is the most important/valuable possession that must be addressed in your will?

your children

A ____________ is a person or persons who assumes the responsibilities of your children.

guardian

__________________ is when the guardian evaluate the father and mother and decides who is the "better parent" and deserves custody.

guardian ad litem

_________________ is a legal document authorizing someone to act on your behalf.

durable power of attorney

A ______________ is a document that enables an individual while well, to express the intention that life be allowed to end if he or she becomes terminally ill.

living will

The letter of last instruction is also known as ____________ and can contain important information for heirs.

after-death wishes

A _____________ is a legal arrangement where a trustee holds your assets for the benefit of your beneficiaries.

trust

What are the two types of trusts?

revocable, irrevocable

The benefits of a ___________:

1. reduces or provides for payment of estate taxes

2. avoids probate and transfers your assets immediately to your beneficiaries upon your death

3. provides income for surviving spouse or beneficiaries

4. ensure your property serves a desired purpose after your death

trust

What are the 3 types of joint ownership in estate planning?

joint ownership with rights of survivorship,

tenants in common,

tenancy by the entirety

This type of joint ownership ensures that each individual is considered to own a proportionate share (equal shares).

tenants in common

This type of joint ownership is limited to married couples where both own the property and when one spouse dies, the other gets it automatically.

tenants in common

Dying with a valid will or trust is known as _______________.

testate

_________________ are federal taxes levied on the value of the inheritance of a deceased person to transmit his/her property and life insurance at death. This is due and payable within 9 months after your death.

estate taxes

An ______________ is levied on the right of an heir to receive all or part of the estate and life insurance proceeds of a deceased person.

inheritance tax

Inheritance taxes are imposed only by _____________ governments.

state

Tax ____________ are legal methods to reduce taxes while tax _____________ are illegal methods.

avoidance, evasion