The Income Method, Used to Calculate Your Life Insurance Coverage

question 98

Multiple Choice

The income method, used to calculate your life insurance coverage, multiplies your current annual income by

• A) your expenses per month.
• B) the number of your dependents.
• C) some arbitrary number, such as 10.
• D) your life expectancy.

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Definitions:

Diseconomies of Scale

The situation where a company or business grows so large that the costs per unit increase, typically due to inefficiencies.

Economies of Scale

Economies of scale describe the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Average Cost

The total cost of production divided by the quantity of output, representing the cost per unit of output.

Interest Rate

The cost of borrowing money or the return on investment, expressed as a percentage of the principal.