RM497 EXAM #1 QUESTIONS AND
ANSWERS. VERIFIED 2025/2026.
Social Insurance - ANS Insurance provided by governmental body (ex: Social Security)
-Income redistribution (not based on AFP)
-Compulsory participation
-Government sets premium
-Can correct market imperfections
Determining insurable value in privately insured LH policies 3 Approaches - ANS -Present
value of a person's earnings stream-Human Life Value (HLV): Capital value of a person's future
net earnings
-Needs Approach: Buy enough coverage to pay key needs (ex: mortgage, support for
dependents)
Economic Value of Human Life Value (HLV - ANS Capitalized value of a persian's future net
earnings
-"Net" after subtracting self-maintenance costs
-Basis for valuing a person's life in life insurance
-Often measured from the eyes of the insured person's dependents (ex: family, firm, or
business)
-Used to measure the investment yielded by human capital
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, HLV Estimation Process - ANS 1)Estimate mean annual earnings for rest of working life
2)Deduct taxes and cost of self maintenance
3)Determine number of years until retirement
4)Select appropriate discount rate
5)Find (1)-(2) and multiply it times PV of $1 per year for time period found in (3), assuming the
discount rate in (4)
HLV Example: Lee is a married male, age 35, planning to retire at age 65. His gross annual
earnings are $80,000 (assumed constant), with $40,000 available to support his family. Assume
a discount rate equal to 5%. Given above, the present value of $1 per year for 30 years equals
15.37. What is Lee's HLV? - ANS $40,000*15.37 = $614,800
Three roles of EB plans - ANS -Accomodation/Enhancement benefits
-Paid time-off
-Protection programs
Legally required EB benefits - ANS Social Security, workers comp, disability and life insurance.
Employers must decide how to design these plans, such as:
-Eligibility
-Financing
-Benefit levels
Design of EBs should support strategic goals of... - ANS the firm or organization
EB Total Comp Strategy - ANS Design wages and EBs to attract targeted workers
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
ANSWERS. VERIFIED 2025/2026.
Social Insurance - ANS Insurance provided by governmental body (ex: Social Security)
-Income redistribution (not based on AFP)
-Compulsory participation
-Government sets premium
-Can correct market imperfections
Determining insurable value in privately insured LH policies 3 Approaches - ANS -Present
value of a person's earnings stream-Human Life Value (HLV): Capital value of a person's future
net earnings
-Needs Approach: Buy enough coverage to pay key needs (ex: mortgage, support for
dependents)
Economic Value of Human Life Value (HLV - ANS Capitalized value of a persian's future net
earnings
-"Net" after subtracting self-maintenance costs
-Basis for valuing a person's life in life insurance
-Often measured from the eyes of the insured person's dependents (ex: family, firm, or
business)
-Used to measure the investment yielded by human capital
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, HLV Estimation Process - ANS 1)Estimate mean annual earnings for rest of working life
2)Deduct taxes and cost of self maintenance
3)Determine number of years until retirement
4)Select appropriate discount rate
5)Find (1)-(2) and multiply it times PV of $1 per year for time period found in (3), assuming the
discount rate in (4)
HLV Example: Lee is a married male, age 35, planning to retire at age 65. His gross annual
earnings are $80,000 (assumed constant), with $40,000 available to support his family. Assume
a discount rate equal to 5%. Given above, the present value of $1 per year for 30 years equals
15.37. What is Lee's HLV? - ANS $40,000*15.37 = $614,800
Three roles of EB plans - ANS -Accomodation/Enhancement benefits
-Paid time-off
-Protection programs
Legally required EB benefits - ANS Social Security, workers comp, disability and life insurance.
Employers must decide how to design these plans, such as:
-Eligibility
-Financing
-Benefit levels
Design of EBs should support strategic goals of... - ANS the firm or organization
EB Total Comp Strategy - ANS Design wages and EBs to attract targeted workers
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
