Question

1.You expect Social Security will replace 30% of your income. Your average annual career income is $60,000. Since you plan to travel more frequently throughout your retirement years, you think you will need an 85% wage replacement rate. What percent of your income will you be responsible to replace?

A.30%.

B.55%.

C.85%.

D.−15%.

2.Abha purchases an annual renewable term life insurance policy. Each year she renews her coverage, her premiums will?

A.potentially increase, decrease, or remain the same depending on her health status.

B.increase.

C.remain the same.

D.decrease.

Answer 1

Solution:

(1) Average annual career income = $60,000

Let the annual career income be 100%

Social security income will replace = 30% of the total income

Wage replacement rate = 85%

So,Income reposnisible to replace = (Wage replacement rate) -- (Social Security Income)

= (85%) -- (35%)

Income responsible to replace = 55%

Correct Option is (B)

(2) Abha purchases an annual renewable term life insurance policy and each year she renews her coverage

Annual renewable term insurance (ART) is a form of term life insurance which offers a guarantee of future insurability for a set period of years. During the stated period, the policyholder will be able to renew each year without reapplying or taking another medical exam to reaffirm eligibility. The design of an ART is to cover short- term insurance needs. These policies are underwritten using the same mortality tables as other life insurance products. Also, they are the least expensive form of life insurance concerning the premium charged.

Premiums are the monthly or yearly fees paid to the provider to underwrite the insurance. These payments continue on a one-year contract basis and may increase on the renewal of the insurance contract. As the insured ages, the premium will increase.

Correct Option is (B)