Question

What is the purpose of a life annuity? O Provide property insurance for as long as the property is owned by the policyholder O Spread insurance payments out over a lifetime (as a way to deal with cash flow constraints) O Provide health insurance for a lifetime O Provide income to protect longevity (risk of outliving one's resources)

Answer 1

Part A:

Annuity means a series of payments made at equal intervals.

Life Annuity is a type of insurance product sold by the life insurance companies that act as a safety net by providing insurers/ annuitant with a lifetime of guaranteed income streams.

In the above question:

Option 1 is incorrect as life annuity is a product relating to life insurance and not property.

Option 2 is incorrect as life annuity helps cope up with the cash flow constraints at a future period and not current. They provide lumpsum benefit at the time of retirement or in installments which help coping up with the reduced cashflows at at older age.

Option 3 is incorrect as health insurance is a type of general insurance that covers the medical expenses of the individual that also upto the amount covered, while life annuity is a type of life insurance contact that covers risk of life and pays out assured sum.

Thus the correct answer is Option 4:

The purpose of life annuity is to "provide income to protect longevity (risk of outliving one's resources"

Part B

The personal umbrella life insurance policy is an extra liability insurance coverage over and above the original insurance policy limits. It comes into play when the underlying liability limits (such as homeowners or auto insurance) have been exhausted.

It covers :

1. not only the policy holders but also other members of their family
2. injury to others or damage to their possessions
3. certain liability claims that policies may not cover such as libel, slander and false imprisonment
4. legal representation and cost of defense

However it does not cover:

1. damage to your own property
2. damage cause on purpose by you or your household member
3. liability incurred in business and professional activities
4. liability agreed or assumed under a contract

Thus in the above question:

Option 2 "The personal umbrella will not cover criminal acts, business activities and activities that are specifically excluded by the policy provisions"

is correct as any insurance policy will not cover the specific exclusions as per policy contract

Option 3 "An umbrella liability polciy is designed to insure boldily- injury, property damage or personal injury cause to another person, when the policyholder is at fault"

is correct as the policy is a type of add on policy over any type of original policy cover. It is specifically taken by the insured who are at a risk of being sued for damages to other people's proeprties or injuries caused to others in ac accident.

Option 4 "The insurance company will provide legal defense in the lawsuit, as a part of the umbrella coverage"

is correct as the policy coverage includes legal expenses.

However,

Option 1 "The umbrella policy will cover damage to the policyholder's own body or own property, if the loss exceeds their personal insurance coverage"

is INCORRECT as the primary exclusion of the umbrella insurance policy is noncoverage of damage to own property.

Thus Option 1 is Incorrect the above question