All of the Following Statements About Life Insurance Company Investments

question 15

Multiple Choice

All of the following statements about life insurance company investments are true EXCEPT

• A)Funds for these investments are derived primarily from premium income,investment earnings,and maturing investments that must be reinvested.
• B)Income from these investments reduces the cost of insurance.
• C)A primary objective in making these investments is safety of principal.
• D)The majority of these investments are short-term investments.

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Definitions:

Net Present Value

A calculation that compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account to analyze the profitability of investments.

Profitability Index

A financial metric that measures the relative profitability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.

Annuity

A financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees.

Net Present Value

Net Present Value (NPV) is a financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time, used to assess the profitability of an investment.