All of these are typically sources of underwriting information for life or health insurance EXCEPT
* Consumer reports
* Medical Information Bureau (MIB) reports
* Disclosure authorization response
* Attending physician's statement (APS)
Disclosure authorization response
When does a life insurance policy typically become effective?
* When the policy is issued
* When initial premium is collected and policy is issued
* When the application is completed and signed
* When the completed application is signed and initial premiu
When initial premium is collected and policy is issued
Which of the following pertains to the analysis of an applicant's personal information and determining whether insurance should be issued or declined?
Adverse calculation
Underwriting
Risk classification
Actuarial determination
Underwriting
Which of the following describes a person who is NOT acceptable by an insurer at standard rates because of health history, occupation, or hobbies?
Standard risk
Preferred risk
Unacceptable risk
Substandard risk
Substandard risk
Which of these is likely to occur when life or health insurance is being applied for?
The Medical Information Bureau (MIB) will determine the risk classification
The agent is required to report all medical information to the Medical Information Bureau (MI
Medical history from the insured may be reviewed and reported
Which of these is considered to be a document that describes the critical segments of a life insurance policy?
Buyer's guide
Policy summary
Consumer report
Buyer's summary
Policy summary
What is the purpose of the Medical Information Bureau (MIB)?
To accept or decline insurance applicants
To set the premium rates for insurers
To help underwriters evaluate risk
To perform physical examinations on applicants
To help underwriters evaluate risk
Which of the following does a life insurance policy summary normally include?
The policy's cash value
Agent's report
Policyowner's MIB report
Stated beneficiary
The policy's cash value
All of these are considered sources of information that can assist an underwriter in determining whether or not to accept a risk EXCEPT
Agent's report
Medical Information Bureau (MIB)
Inspection reports
National Association of Insurance Underwriters
National Association of Insurance Underwriters
Which of the following signatures is not required on an individual insurance application?
Producer
Applicant
Insured
Insurer
Insurer
What is involved when a life insurance policy has been backdated?
Setting a policy's effective date prior to a preexisting condition
Redating a policy after it has been issued
Reinstating a lapsed policy
Making the policy effective on an earlier date than
Making the policy effective on an earlier date than the present
Which scenario would most life insurance policies exclude coverage for?
A tourist traveling abroad on a major airline carrier
An individual who has a hobby racing cars once a month
An airline pilot who flies for a commercial carrier
A soldier on leave at
An individual who has a hobby racing cars once a month
Underwriters can acquire information from all of the following sources EXCEPT
Medical Information Bureau (MIB)
consumer reports
attending physician's statements
genetic testing
genetic testing
An insurance applicant with a below-average likelihood of loss is typically considered to be a
preferred risk
subpar risk
declined risk
standard risk
preferred risk
Which of the following would be a valid reason why a policy premium would be higher than the standard premium?
The insurer is not a member of the MIB
The agent quoted the wrong price
The insured does not have the necessary financial reserves
The insured d
The insured does not meet established underwriting requirements
A field underwriter's main task is
assign a risk classification to the insured
report medical information to the Medical Information Bureau (MIB)
to ensure an applicant's medical information is accurate and complete
to approve or decline an applicant
to ensure an applicant's medical information is accurate and complete
An applicant's character and personal habits can be obtained for underwriting purposes from which source?
Investigative consumer report
Attending physician's statement
Medical Information Bureau (MIB)
Credit report
Investigative consumer report
Which of the following would be considered an underwriting duty of an agent?
Requesting medical information from the Medical Information Bureau (MIB)
Completing all applications and collecting initial premiums
Accepting or declining an application
Assigni
Completing all applications and collecting initial premiums
Preferred risk policies with reduced premiums are issued by insurance companies because the insured has
a higher face amount than average
a better ability to pay premiums over a long period of time
worse than average mortality or morbidity experience
bett
better than average mortality or morbidity experience
Upon policy delivery, which of the following must a producer have an applicant sign if no initial premium was collected with the life insurance application?
A waiver of premium
A replacement form
A good health statement
An exclusion
A good health statement
An applicant intentionally lying to an insurance company on an application in order to obtain a cheaper premium is an example of
rebating
coercion
fraud
twisting
fraud
An attending physician's statement would be appropriate for which life insurance purpose?
Attending physician's statements are mandatory during the application process
At the request of the applicant to assist in the underwriting decision
At the request o
At the request of the insurer to assist in the underwriting decision
Which of these is NOT considered to be a risk factor in life insurance underwriting?
Number of children
Health history
Hobbies
Occupation
Number of children
How many months can a life insurance policy normally be backdated from the date of application?
3
6
9
12
6
An insurer has a right to screen applicants for HIV in which of the following ways?
Blood test for HIV
Inquiring about risky sexual behavior
Inquiring about sexual orientation
Automatically declining an application due to sexual orientation
Blood test for HIV
The principle of insurable interest, in regards to a life insurance contract, is accurately described in which statement?
An agent establishes insurable interest
An individual does not have insurable interest on his or her own life
Insurable interest only
Insurable interest can be based on the love and affection of individuals related by blood or law
A person who is a nonsmoker, of average weight, and in excellent health would most likely be in which risk classification?
Standard
Substandard
Acceptable
Preferred
Preferred
A change in an insurance application requires
an initial made by the producer
an initial made by the applicant
approval by the insurer
submitting a new application
an initial made by the applicant
All of these are considered key factors in underwriting life insurance EXCEPT
Tobacco use
Health history
Age
Marital status
Marital status
Statements made by an insurance applicant on an application are considered to be
irrevocable
warranties
representations
guarantees
representations
An individual most likely will have an insurable interest in insuring a person's life if
an economic interest exists for the continuance of the insured's life
a financial interest exists at the time of insured's death
there is any blood relationship with
an economic interest exists for the continuance of the insured's life
What would happen if a life insurance applicant is given a conditional receipt from an insurance agent and then dies the next day?
Claim will be denied by insurer
Claim will be paid if money was received by the insurance company
Claim will be paid if unde
Claim will be paid if application is approved
In which of the following relationships would there NOT be an insurable interest?
Parent to child
Business partner to business partner
Brother to sister
Business owner to business customer
Business owner to business customer
If the agency contract gives the producer the authority to solicit insurance but states nothing about the collection of premiums, the producer normally has authority to collect premiums based on
* Implied authority
* Express authority
* Apparent authority
Implied authority
Which characteristic of an insurance contract means there is a potential for unequal exchange of value for both parties?
* Aleatory
* Adhesion
* Unilateral
* Conditional
Aleatory ( Insurance contracts are aleatory. Aleatory contracts are conditioned upon the occurrence of an event. The benefits provided by an insurance policy may or may not exceed the premiums paid.)
An agent is an individual that represents whom?
* Insurer
* Insured
* Broker
* Himself/Herself
Insurer (An agent is an individual who is authorized by an insurer to sell goods and services on its behalf. An agent is also the insurer's representative in dealing with the public.)
All of the following are considered to be typical characteristics describing the nature of an insurance contract EXCEPT
* Bilateral
* Unilateral
* Aleatory
* Adhesion
Bilateral
Which of the following statements describes an insurable interest?
* The policyowner must expect to benefit from the insured's death.
* The policyowner must expect to suffer a loss when the insured dies or becomes disabled. (The policyowner must face the
The policyowner must expect to suffer a loss when the insured dies or becomes disabled. (The policyowner must face the possibility of losing money or something of value in the event of the death or disability of the insured.)
The authority of an agent which is spelled out in the written words of the agency contract between the agent and the insurer is called
implied authority
apparent authority
presumed authority
expressed authority (Express authority is the authority a princi
...
In life insurance, an insurable interest in the life of the insured must exist
Only at the inception of the contract (Insurable interest must only exist at the time of application.)
Only at the death of the insured
During the first two years of the contra
...
Which of the following statements about authority is NOT correct?
Express authority is granted by means of the agent's contract.
Express authority is determined by a principal's conduct.
Implied authority is not overtly extended in the agent's contract bu
...
Which of the following best describes the concept that the consideration is not equal in contract law?
Adhesion
Warranty
Subrogation
Aleatory (Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of
...
Which of the following is an example of legal consideration?
Politeness
Application and initial premium (Consideration can be defined as something of value given in exchange for the promises sought. In an insurance contract, consideration is given by the
...
The term which describes the fact that both parties of a contract may NOT receive the same value is referred to as
Apparent
Estoppel
Aleatory ( Aleatory is a term that describes the fact that both parties of a contract may NOT receive the same value.)
Uni
...
When an agent is provided the materials from his/her company, which category of authority is the one which allows those items to be used?
Intended
Implied
Apparent (Apparent authority is the appearance or assumption of authority based on the actions, word
...
The following are all characteristics of insurance contracts EXCEPT
insurable interest
unilateral
valued or indemnity
Unconditional (Unconditional is not a characteristic of an insurance contract)
...
Which is considered a statement made by an applicant that he/she believes to be true?
Warranty
Concealment
Representation (Representations are statements made by applicants to which they believe are true. They are used by insurers to evaluate whether or n
...
A life insurance policy would be considered a wagering contract WITHOUT
insurable interest
premium payment
agent solicitation
constructive delivery
...
A producer's powers stated in the agency contract are:
Express
Implied
Apparent
Conditional
...
All of the following are true about aleatory contracts EXCEPT
Consideration may be unequal
The outcome depends on chance or uncertain event
Only one party makes a legally enforceable offer (Insurance contracts are aleatory, which means there is an unequal
...
With life and health contracts, when must an insurable interest exist?
After the policy is issued
Before the beneficiary is named
While the policy is in force
At the inception of the policy (Insurable interest must only occur at the time of inception. How
...
The deeds and actions of a producer indicate what kind of authority?
Express
Apparent (Apparent authority is the appearance or assumption of authority based on the actions, words, or deeds of the producer.)
Implied
Conditional
...
All of the following would be considered non-competent parties in an insurance contract EXCEPT
minors
the disabled
the mentally infirm
those under the influence of drugs or alcohol
...
Which of the following terms is used for the voluntary relinquishment of a known right?
Estoppel
Adhesion
Waiver (If an insurer voluntarily waives a legal right it has under the contract, it cannot later deny a claim based on a violation of that right.)
U
...
All of the following normally indicate the presence of insurable interest in the life of another person EXCEPT
Maintaining a lasting friendship with the other person
Being closely related to the other person by birth
Being married to the other person
Co-s
...
Krissa and Janet enter into a contract in which Krissa agrees to fraudulently induce sick people to sell their insurance contracts to Janet's company. Krissa and Janet's contract can best be described as
Void (A void contract is simply an agreement withou
...
An insurance contract is prepared by one party, the insurer, rather than by a negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts?
The insurance contract is an aleatory contrac
...
An insurance company has how many years to challenge the validity of a life insurance contract?
One
Two ( After two years, the insurer cannot contest the policy or deny benefits based on any incorrect information in the insurance policy, this is called th
...
When the principal gives the agent authority in writing, it's referred to as
express authority
implied authority
apparent authority
imposed authority
...
The power given to an individual producer that is not specifically addressed in his/her contract is considered what type of authority?
discreet
apparent
Implied (Implied authority is the unwritten authority that is not expressly granted, but which the age
...
What makes an insurance policy a unilateral contract?
Only the insured pays the premium
Only the insured can change the provisions
Only the insurer is legally bound (Insurance contracts are unilateral, meaning that only the insurer makes legally enforceab
...
Which of the following statements regarding insurable interest is NOT correct?
Insurable interest exists when the applicant is the insured.
A policy obtained by a person without an insurable interest in the insured can be enforced. (Insurable interest occ
...
The unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement is
Implied authority
Mandated authority
Express authority
Assumed authority
...
Which type of clause describes the following statement: "We have issued the policy in consideration of the representations in your applications and payment of the first-term premium".
Premium clause
Consideration clause
Adhesion clause
Contestability clau
...
A relationship in which one person is authorized to represent and act for another person or company is established through:
The Fair Credit Reporting Act
The law of agency (An agency is a situation where an agent has the power to represent and act for ano
...
Which of the following statements describes the parol evidence rule?
A written contract cannot be changed once it is signed.
An oral contract cannot be modified by written evidence.
A written contract cannot be changed by oral evidence. (Parol evidence ru
...
Intentional withholding of material facts that would affect an insurance policy's validity is called a(n)
estoppel
concealment
adhesion
misrepresentation
...
A valid contract requires all of the following EXCEPT
Offer and acceptance
Competent parties
Consideration
Written evidence
...
In insurance, an offer is usually made when
The agent hands the policy to the policyholder
An agent explains a policy to a potential applicant
The application is submitted (In insurance, the offer is usually made by the applicant in the form of the applic
...
Special features of insurance contracts include all of the following EXCEPT
conditional
aleatory
unilateral
estoppel
...
An agreement without legal effect is
estoppel
parole evidence
fraudulent
Void ( A void contract is simply an agreement without legal effect. In essence, it is not a contract at all, for it lacks one of the elements specified by law for a valid contract. A
...
The authority that an insurer gives to its agent by means of the agent's contract is known as
Implied authority
Express authority (Express authority is written in the contract between the insurer and the agent. Implied authority is assumed and not written
...
A professional liability for which producers can be sued for mistakes of putting a policy into effect is called
fiduciary bond
errors and omissions (Errors and omissions is a professional liability for which producers can be sued for mistakes of putting a
...
All are competent parties who can enter into insurance contracts EXCEPT
Applicants
Trusts and estates
Business entities
Those under influence of alcohol (Applicants, trusts and estates, and business entities are all considered competent parties. The exclu
...
What is implied authority defined as?
Authority given in writing to an agent in the agency agreement
Authority that is not specifically given to an agent in the agency contract, but that an agent can reasonably assume to carry out his/her duties (Implied
...
In an insurance contract, the element that shows each party is giving something of value is called
offer
acceptance
Consideration (Consideration is the element of an insurance contract which demonstrates that each party is giving something of value.)
purp
...
Because an insurance contract has been prepared by an insurance company with no negotiation, it is considered
a unilateral contract
a contract of adhesion (Insurance contracts are contracts of adhesion. This means that the contract has been prepared by on
...
Insurable interest must exist at what time?
At the time of application (It is important to note that insurable interests must exist upon issuance of a life or health insurance contract. It does not have to continue throughout the duration of the policy no
...
Which of the following is a unique characteristic of an insurance contract?
Offer and Acceptance
Conditional (An insurance contract is conditional in that certain conditions must be met before the contract can be legally enforced.)
Consideration
Competent
...
The authority given by an insurer or employer to a licensee to transact insurance or adjust claims on their behalf is called
Authorization (Authority is the actions and deeds an agent is authorized to conduct on behalf of an insurance company, as specifie
...
An agent is an individual who has been authorized by an insurer to be its representative and to perform all of the following acts EXCEPT
solicit applications for insurance
collect premiums from policyowners
authorize payment of certain claims (Agents do n
...
Which of the following statements regarding utmost good faith in insurance contracts is CORRECT?
The concept of utmost good faith (that there is no attempt to conceal, disguise, or deceive) applies only to the insurer.
Although a warranty is a statement,
...
When an agent is provided the materials from his/her company, which category of authority is the one which allows those items to be used?
Intended
Implied
Apparent (Apparent authority is the appearance or assumption of authority based on the actions, word
...
Which of the following statements about authority is NOT correct?
Express authority is granted by means of the agent's contract.
Express authority is determined by a principal's conduct. (Express authority is the authority an insurance company grants to a
...
Which of the following is an example of legal consideration?
Politeness
Application and initial premium ( Consideration can be defined as something of value given in exchange for the promises sought. In an insurance contract, consideration is given by the
...
All of the following are true about aleatory contracts EXCEPT
Consideration may be unequal
The outcome depends on chance or uncertain event
Only one party makes a legally enforceable offer ( Insurance contracts are aleatory, which means there is an unequa
...
Dividends from a stock company are paid to stockholders, whereas in a mutual company, dividends are
reinvested as capital gains and used to reduce rates for policyowners
paid quarterly to the corporate officers and directors as a bonus
paid to the policyo
paid to the policyowners
Who receives dividends in a mutual insurance company?
Policyholders
Stockholders
Beneficiaries
Employees
Policyholders
Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated
1970 - Fair Credit Reporting Act
1959 - Intervention by (SEC) The Securities and Exchange Commission
1999 - Financial Services Modern
1970 - Fair Credit Reporting Act (Fair Credit Reporting Act requires the fair and accurate reporting of information about consumers. Insurers must inform applicants about any investigations being made. If the report is used to deny coverage or charge high
A life insurance company has transferred some of its risk to another insurer. The insurer assuming the risk is called the
mutual insurer
reinsurer
reciprocal insurer
participating insurer
reinsurer
In addition to the state, the organization that regulates variable life and variable annuities is the
Federal Trade Commission (FTC)
National Association of Insurance Commissioners (NAIC)
Securities and Exchange Commission (SEC)
Federal Communications Com
Securities and Exchange Commission (SEC)
A life insurance company that shares its surplus earnings with its insureds is known as
a participating company
a fraternal organization
an association
an admitted company
a participating company
Which of the following mandated that insurance would be regulated by the states as well as made possible the application of federal antitrust laws?
Paul v. Virginia
McCarran-Ferguson
Armstrong investigation
U.S. v. Southeastern Underwriters
McCarran-Ferguson
A type of insurer that is owned by its policyowners is called
domestic
mutual
stock
in-house
mutual
An insurer's ability to make unpredictable payouts to policyowners is called
investment values
liquidity
assets
capital
liquidity
What type of agent may represent a number of insurance companies under separate contractual agreements
Career agent
Captive agent
Company agent
Independent agent
Independent agent
Companies that sell more than one type of insurance are
multi-line insurers
property and causalty
mutual company
life company
multi-line insurers
Which one of the following statements about participating life insurance is true?
Policyowners may be entitled to receive dividends
Policyowners are assessed monthly for losses
The insured must be the policyowner
The insurer must be a stock company
Policyowners may be entitled to receive dividends
Why are dividends from a mutual insurer not subject to taxation?
Because insurance premiums are tax-deductible
Because dividends are already subject to capital gains
Because dividends are payable directly to the policyholder
Because dividends are consider
Because dividends are considered to be a return of premium
A plan in which an employer pays insurance benefits from a fund derived from the employer's current revenues is called
A self-derived plan
A multiple-employer plan
A blanket plan
A self-funded plan
A self-funded plan
Which law requires fair and accurate reporting of information about consumers?
Financial Services Modernization Act
Fair Credit Reporting Act
McCarran-Ferguson Act
Unfair Trade Practices Act
Fair Credit Reporting Act
The State Guaranty Association guarantees
that a policy will be issued
that a claim will be paid if an insurer becomes insolvent
that dividends will be paid
the rate of return on a policy
that a claim will be paid if an insurer becomes insolvent
A nonparticipating policy will
provide a return of premium
provide tax advantages
not pay dividends
give policyowners special privileges
not pay dividends
What is the primary purpose of a rating service company such as A.M Best?
Determine which insurer offers the best rates
Determine which insurer offers the best policies
Determine financial strength of an insurance company
Determine which agent to use loca
Determine financial strength of an insurance company
Nonparticipating insurers do not allow their policyowners to receive which of the following?
cash advances
dividends
preferred premium rates
stock options
dividends
Mutual insurers pay dividends to participating policyowners if the insurer has which of the following?
Divisible surplus
Reciprocal Dividend Agreement
Certificate of Authority
Participating clause
Divisible surplus (By issuing participating policies that pay policy dividends, mutual insurers allow their policyowners to share in any company earnings.)
Which of the following is NOT a commercial insurer
Industrial Company
Fraternal Company
Stock Company
Mutual Company
Fraternal Company
What is considered to be the primary reason for buying life insurance?
Provide death benefits
Provide money for retirement
Provide living benefits
Provide money for college
Provide death benefits
What is the role of insurance?
Provide a solution for economic uncertainty and loss
Guarantee lifelong happiness
Provide counseling and support services
Guarantee short term happiness
Provide a solution for economic uncertainty and loss
What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus?
nonparticipating life insurance policy
participating life insurance policy
divisible surplus life insurance policy
straight life insurance policy
participating life insurance policy (A mutual insurer issues life insurance policies that provide a return of divisible surplus.)
What is the purpose of insurance?
To replace the uncertainty of risk with guarantees
To replace guarantees with the certainty of risk
To remove the possibility of loss
To remove the predictability of loss
To replace the uncertainty of risk with guarantees
Participating insurers allow their policyowners to
share in any company earnings and receive a dividend
receive preferred premium rates
determine what type of insurance programs are offered
skip premium payments without penalty
share in any company earnings and receive a dividend
A nonparticipating company is sometimes called a(n)
alien insurer
mutual insurer
reinsurer
stock insurer
stock insurer
The major difference between participating and nonparticipating policies is the
interest assumption
premium payment method
settlement options
presence of policy dividends
presence of policy dividends
Which entity has preserving state regulation of insurance as one of its objectives?
American Council of Life Insurance
National Association of Life Underwriters
National Committee to Preserve the Republic
National Association of Insurance Commissioners
National Association of Insurance Commissioners
Which of the following is NOT considered advertising?
A rating from a rating service company, such as A.M. Best
An illustration
A sales presentation
Direct mailing from an agency
A rating from a rating service company, such as A.M. Best
Which of the following statements is correct when comparing participating policies with non-participating policies?
Premiums for participating policies are usually higher than for non-participating policies
Dividends from participating policies are treate
Premiums for participating policies are usually higher than for non-participating policies
Which of the following statements regarding types of insurers is NOT correct?
Reinsurers usually deal with group policyowners.
Mutual insurance companies are "owned" by their policyowners.
Stock insurance companies seek a profit for their shareholders.
Fr
Reinsurers usually deal with group policy owners. (Reinsurers make arrangements with other insurance companies to transfer a portion of their risk to the reinsurer. The company transferring the risk is called the ceding company and the company assuming th
Who is considered the owner of a mutual insurance company?
Stockholders
Policyholders
Mutual fund shareholders
Attorney in fact
Policyholders
Under a Modified Endowment Contract, what are the likely tax consequences?
Interest on policy loans is tax deductible
Premium payments are tax deductible
Pre-death distributions will become taxable
Cash value cannot be surrendered early
Pre-death distributions will become taxable
The statement which best describes the relationship between the premiums of a whole life policy and the premium payment period is
The shorter the payment period, the lower the premium
The longer the payment period, the higher the premium
The shorter the p
The shorter the payment period, the higher the premium
Which of these riders will pay a death benefit if the insured's spouse dies?
Guaranteed Insurability rider
Family term insurance rider
Family whole insurance rider
Payor benefit rider
Family term insurance rider
All of these are characteristics of a universal life insurance policy EXCEPT
Flexible death benefit
All of these are characteristics of a universal life insurance policy EXCEPT
Flexible death benefit
Fixed surrender value
Flexible premiums
Builds cash val
Fixed surrender value
Variable life insurance and Universal life insurance are very similar. Which of these features are held exclusively by variable universal life insurance?
Policyowner may increase or decrease the premium payments
Policyowner may increase or decrease the fa
Policyowner has the right to select the investment which will provide the greatest return
Level premium permanent insurance accumulates a reserve that will eventually
equal the face amount of the policy
pay a dividend to the policyowner
require the policyowner to make periodic withdrawals
become larger than the face amount
equal the face amount of the policy
Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive?
Adjustable life policy
Modified life policy
Endowment policy
Universal life policy
Endowment policy
Peter has a policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index. What kind of policy is this?
Modified Endowment Contract
Curr
Equity index whole life
A Renewable Term Life insurance policy can be renewed
at a predetermined date or age, regardless of the insured's health
only if the insured provides evidence of insurability
anytime at the policyowner's request
typically with no change in premium
at a predetermined date or age, regardless of the insured's health
A renewable Term Life insurance policy allows the policyowner the right to renew the policy
at anytime the policyowner chooses
as many times as the policyowner chooses
paying the same premium as before the renewal
without producing proof of insurability
without producing proof of insurability
Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test?
Policy loans are disallowed
The premium payments will be tax deductible
Pre-death distributions are typically taxable
Withdrawals will be prohibit
Pre-death distributions are typically taxable
What is the automatic continuance of insurance coverage referred to as?
renewal
reinstatement
resumption
renovation
renewal
Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)?
Loan against the cash value
Policy withdrawal
Policy dividend
Death benefit
Death benefit
A Modified Endowment Contract (MEC) is best described as
A life insurance contract which accumulates cash values higher than the IRS will allow
An annuity contract which was converted from a life insurance contract
A modified life contract which enjoys al
A life insurance contract which accumulates cash values higher than the IRS will allow
A spouse and child can be added to the primary insured's coverage as what kind of rider?
Dependent term
Guaranteed insurability
Primary term
Family term
Family term
The premium for a Modified whole life policy is
higher than the typical whole life policy during the first few years and then lower than typical for the remainder
lower than the typical whole life policy during the first few years and then higher than typ
lower than the typical whole life policy during the first few years and then higher than typical for the remainder
Krissa purchases a 10-year level term life insurance policy that has a death benefit of $200,000. Which of these statements is true?
The policy automatically converts to whole life after the 10-year period
The face amount will remain constant and the prem
The face amount and premium will remain constant over the 10-year period
A policyowner may change two policy features on what type of life insurance?
Modified Whole Life
Decreasing Term Life
Adjustable Life
Whole Life
Adjustable Life
Which of the following are the premium payments for a Universal life policy NOT used for?
Death benefits
Cash value
Loading costs
Separate account investments
Separate account investments
A securities license is required for a life insurance producer to sell
modified life insurance
Modified Endowment Contracts (MEC)
variable life insurance
universal life insurance
variable life insurance
A life insurance policy written on one contract for two people in which it is payable upon the first death is called
Split
Shared
Joint
Survivorship
Joint
All of these statements concerning whole life insurance are false EXCEPT
Policyowner can take out a policy loan up to the face amount
When a whole life policy is surrendered, income taxes may be owed
Coverage is normally temporary
The death benefit is not
When a whole life policy is surrendered, income taxes may be owed
Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested?
Adjustable life policy
Variable universal policy
Universal policy
Modified whole life policy
Variable universal policy
Joe has a life insurance policy that has a face amount of $300,000. After a number of years, the policy's cash value accumulates to $50,000 and the face amount becomes $350,000. What kind of policy is this?
Increasing Term Life policy
Nonparticipating pol
Universal Life policy
A life insurance policy that has premiums fully paid up within a stated time period is called
stated payment insurance
limited universal insurance
stated modified insurance
limited payment insurance
limited payment insurance (Limited payment insurance is characterized by premiums that are fully paid up within a stated period, after which no further premiums are required.)
Which type of life insurance is normally associated with a Payor Benefit rider?
Juvenile insurance
Family income insurance
Spouse insurance
Term rider
Juvenile insurance
What happens to the coverage under a children's term rider when that child reaches a certain specified age?
Coverage decreases automatically
Coverage increases automatically
Coverage remains as long as proof of insurability is provided
Coverage is elimina
Coverage is eliminated
Shawn, Mike, and Dave are brothers who have a $100,000 "first to die" joint life policy covering all three of their lives. If Mike dies first, the policy proceeds
will no longer provide insurance protection
will go to Mike's estate
will be divided by prob
will no longer provide insurance protection
A life insurance policy which contains cash values that vary according to its investment performance of stocks is called
Increasing Term Life
Modified Whole Life
Variable Whole Life
Adjustable Whole Life
Variable Whole Life
All of these are valid options for an Adjustable Life Policy EXCEPT
The policy's premium can be increased or decreased
The policy's death benefit can be increased or decreased
A nonforfeiture option can be used to increase the death benefit
The policy's p
A nonforfeiture option can be used to increase the death benefit
The least expensive option to pay off a 30-year mortgage balance would be
convertible term life
decreasing term life
adjustable term life
increasing term life
decreasing term life
How are survivorship life insurance policies helpful in estate planning?
Provide funds to help fund retirement
Provide funds to help pay taxes
Provide funds for funeral expenses
Provide tax deductions for premium payments
Provide funds to help pay taxes
Index whole life insurance contains a securities component that acts as a(n)
hedge against inflation
premium stabilizer
means to lowering taxes on earnings
incentive to purchase more coverage
hedge against inflation
Term insurance is appropriate for someone who
seeks living benefits for themselves
seeks a policy that builds cash value
seeks temporary protection and lower premiums
seeks permanent protection and higher premiums
seeks temporary protection and lower premiums
The type of multiple protection coverage that pays on the death of the last person is called a(n)
joint life policy
survivorship life policy
annuity joint policy
dual life policy
survivorship life policy
A life insurance policy that is subject to a contract interest rate is referred to as
adjustable life
group life
term life
universal life
universal life
Julie has a $100,000 30-year mortgage on her new home. What type of life insurance could she purchase that is designed to pay off the loan balance if she dies within the 30-year period?
Adjustable life insurance
Decreasing term insurance
Increasing term i
Decreasing term insurance
A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called
whole life
group life
credit life
universal life
universal life
Which type of policy combines the flexibility of a universal life policy with investment choices?
Adjustable universal life policy
Flexible universal life policy
Variable universal life policy
Modified universal life policy
Variable universal life policy
When a decreasing term policy is purchased, it contains a decreasing death benefit and
increasing premiums
level premiums
decreasing premiums
variable premiums
level premiums
Which of the following policies does NOT build cash value?
Term
Straight Life
Endowment
Variable Life
Term
A permanent life insurance policy where the policyowner pays premiums for a specified number of years is called a(n)
adjustable policy
limited pay policy
level term policy
variable universal policy
limited pay policy
Decreasing term life insurance is often used to
provide retirement funds
provide coverage for a home mortgage
accumulate cash value
provide coverage for estate taxes
provide coverage for a home mortgage
Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60.
$500,000
The type of policy which pays on the death of the last person is called
joint life
survivorship life
dual life
shared life
survivorship life
Which policy feature makes a universal life policy different from a whole life policy?
A fixed cash value
A flexible premium schedule
A fixed death benefit
The ability to take out a policy loan
A flexible premium schedule
What does the word "level" in Level Term describe?
The period of coverage
The face amount
The premium payments
The cash value
The face amount
A business will typically use which type of life insurance to cover their employees?
Group policy
Adjustable life policy
Whole life policy
Endowment policy
Group policy
What types of life insurance are normally used for key employee indemnification?
term, whole, and universal life insurance
increasing term insurance
joint, credit, and group life insurance
adjustable, permanent, and limited-pay life insurance
term, whole, and universal life insurance
Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider?
Can be converted to permanent coverage without evidence of insurability
Coverage can be different for each child
Premium
Can be converted to permanent coverage without evidence of insurability
Which of these would be the best example of a limited pay life insurance policy?
Whole life policy that pays out its cash value over a 20 year period
Whole life policy with premiums paid up after 20 years
Term life policy that returns cash value after 20
Whole life policy with premiums paid up after 20 years
What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death?
Dual Life insurance
Joint Life insurance
Last Survivor Life insurance
Shared Life insurance
Last Survivor Life insurance
Which of these is NOT a characteristic of the Accelerated Death Benefit option?
The face amount and policy premium are not affected by the payment
Before payment of the benefit is made, specific conditions must exist, such as suffering from a terminal ill
The benefit can be offered as a rider at a specific extra cost or may be at no cost
Of the following dividend options, which of these is taxable?
Reduction of premium
One year term
Paid-up additions
Accumulation at interest
Accumulation at interest
Which of these is considered to be a Living Benefit option in a life insurance policy?
Reinstatement
Waiver of premium
Accelerated death benefit
Payor benefit
Accelerated death benefit
What is the name of the provision which states that a copy of the application must be attached to the policy when issued?
Policy Summary
Buyer's Guide
Entire Contract
Entire Policy
Entire Contract
In what part of an insurance policy are policy benefits found?
Declarations
Entire contract
Waivers
Conditions
Declarations
A provision that allows a policyowner to withdraw a policy's cash value interest free is a(n)
partial surrender
waiver of premium
automatic premium loan
grace period
partial surrender
The double indemnity provision in a life insurance policy pertains to an insured's death caused by a(n)
sickness
suicide
accident
war
accident
A provision that allows a policyowner to temporarily give up ownership rights to secure a loan is called a(n)
automatic premium loan
nonforfeiture option
collateral assignment
irrevocable assignment
collateral assignment
All of these are standard exclusions found in a life insurance policy EXCEPT
hazardous occupations
aviation
disability
war
disability
Which dividend option would an insurer invest the policyowner's money and add any interest earnings as the dividends accrue?
Accumulation at Interest Option
Cash Dividend Option
Paid-Up Additions Option
One-Year Term Dividend Option
Accumulation at Interest Option
Which situation accurately describes a reduced paid-up nonforfeiture option?
Policy has a decreased face amount
Face amount of the new policy equals that of the original policy
Cash value is surrendered to policyowner
Premiums must continue to be paid
Policy has a decreased face amount
Which of the following protects a policyowner from a misrepresentation caused by an innocent mistake?
Reinstatement clause
Entire Contract clause
Incontestable clause
Nonforfeiture clause
Incontestable clause
All of the following riders can increase the death benefit amount EXCEPT
Cost of Living
Waiver of Premium
Accidental Death Rider
Guaranteed Insurability
Waiver of Premium
In order to activate the reinstatement clause of a lapsed life insurance policy, the insured MUST
remit all past-due premiums within the grace period
provide evidence of insurability to the insurer
resubmit a new life insurance application
provide a valid
provide evidence of insurability to the insurer
Which of these is NOT considered to be a common life insurance nonforfeiture option?
Cash surrender
Extended term insurance
Reduced paid-up insurance
Life income annuity
Life income annuity
Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy?
Interest only
Reduced paid-up insurance
Extended term insurance
Cash surrender
Interest only
Matt is applying for life insurance and requests a double indemnity rider. A double indemnity benefit will be payable to Matt's beneficiary if Matt
is killed while committing a felony
dies of a stroke
dies instantly from a car accident
is injured in a ski
dies instantly from a car accident
The two major actions required for a policyholder to comply with the Reinstatement Clause are
provide evidence of insurability, agree to a new incontestable period
provide evidence of insurability, pay past due premiums
pay past due premiums, agree to a n
provide evidence of insurability, pay past due premiums
Which type of rider will waive the premium on a child's life insurance policy if the parent paying the premium dies?
Waiver of premium
Juvenile waiver
Guaranteed insurability
Payor benefit
Payor benefit
A life insurance policy normally contains a provision that restricts coverage in the event of death under all of the following situations EXCEPT
fare-paying passenger
pilot of personal airplane
suicide
war
fare-paying passenger
Joanne has a $100,000 whole life policy with an accumulated $25,000 of cash value. She would like to borrow $15,000 against the cash value. Which of the following statements is TRUE?
Net death benefit will be reduced if the loan is not repaid
No interest
Net death benefit will be reduced if the loan is not repaid
The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid
minus indebtedness and with interest
during the last
minus indebtedness and without interest
The free-look provision gives the policyowner
the right to return the policy for a partial refund within a specified number of days
the right to contest the terms of the policy
the right to change a policy provision
the right to return the policy for a fu
the right to return the policy for a full refund within a specified number of days
A guaranteed issue insurance policy has no
initial premium requirement
incontestable period
waiting period
medical underwriting
medical underwriting
Which of these would limit a company's liability to provide insurance coverage?
Waiver
Exclusion
Rider
Provision
Exclusion
A life insurance rider that allows an individual to purchase insurance as they grow older, regardless of insurability, is called a(n)
guaranteed term rider
guaranteed insurability rider
accelerated benefit rider
cost of living rider
guaranteed insurability rider
Loans obtained by a policyowner against the cash value of a life insurance policy
are treated as taxable income
would not be treated as taxable income
are limited by the face amount of the policy
would be subject to a Federal estate tax
would not be treated as taxable income
All of these are common exclusions to a life insurance policy EXCEPT
accidental death
military service
aviation
hazardous occupations
accidental death
The automatic premium loan provision authorizes an insurer to withdraw from a policy's cash value the amount of
any interest payable from an outstanding policy loan balance
past due premiums that have not been paid by the end of the grace period
the outst
past due premiums that have not been paid by the end of the grace period
All of these are valid options for what a policyowner may do with policy dividends EXCEPT
cash outlay to the policyowner
accumulate without interest
reduction in policy premium
buy additional insurance coverage
accumulate without interest
Dorian exercised a nonforfeiture option by using his life policy's cash value to purchase an extended term insurance option. When the term insurance expires,
he has the option of resuming the original policy and paying the same premium
the coverage can be
the protection ends
A waiver of premium rider allows an insured to waive premium payments if the insured is
temporarily disabled
unemployed
completely and permanently disabled
experiencing financial hardship
completely and permanently disabled
A whole life insurance policy accumulates cash value that becomes
the policy loan value which the insured may borrow against
the death benefit
the source of funding for administration fees
a source of funding a term rider to the policy
the policy loan value which the insured may borrow against
A provision in a whole life policy that allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type is called a(n)
insuring clause
payor provision
reinstatement provision
nonforfeiture provision
nonforfeiture provision
What is an insurance policy's grace period?
Period of time after the initial premium is paid and before the policy is issued
Period of time it takes for a policy's underwriting to complete
Period of time after a policy is issued and before it is delivered
Period of time after the premium is due but the policy remains in force
If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies?
No death benefit is owed because of the misstatement of age
The full original death benefit listed on the policy
A prorated death benef
A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age
An insured individual and the policy's beneficiary die from the same accident. The common disaster provision states the insurer will continue as if
the insured outlived the beneficiary
the beneficiary outlived the insured
no beneficiary was ever named
the
the insured outlived the beneficiary
All of the following are considered to be nonforfeiture options available to a policyowner EXCEPT
Extended Term Insurance
Cash Surrender
Reduction of Premium
Reduced Paid-Up Insurance
Reduction of Premium
A life insurance policyowner does NOT have the right to
change a beneficiary
select a beneficiary
take out a policy loan
revoke an absolute assignment
revoke an absolute assignment
Kurt is an active duty serviceman who was recently killed in an accident while home on leave. Which military service exclusion clause would pay upon his death?
Active
Status
Results
Leave
Results
If an insured dies during the grace period with no premiums paid
the policy would be payable, minus the premium amount
the policy would be payable only after the beneficiary makes past due premium payment
all past premiums will be refunded with interest
t
the policy would be payable, minus the premium amount
Ron has a life insurance policy with a face value of $100,000 and a cost of living rider. If the consumer price index has gone up 4%, how much may Ron increase the face value of the policy?
$400
$800
$2,000
$4,000
$4,000
A rider that assures premiums will be paid on a juvenile policy until the child reaches a specific age is called a(n)
waiver of premium rider
payor rider
automatic premium loan rider
juvenile waiver rider
payor rider
Life insurance policies will normally pay for losses arising from
commercial aviation
war
suicide
hazardous jobs
commercial aviation
A policyowner may exercise which of these dividend options that uses the dividend to pay all or part of the next premium due?
Reduction of premium dividend option
Extended term option
Paid-up option
Cash dividend option
Reduction of premium dividend option
An insurer will accept a premium from the insured and continue the coverage in full force as though it was NOT late during which time period?
Incontestable period
Probation period
Reinstatement period
Grace period
Grace period
James is the insured on a life insurance policy where his age was misstated on the application. Which of the following is CORRECT regarding the death benefit amount?
The original face amount will be paid to the beneficiary
The policy will be voided with n
The death benefit paid will be what the premium would have purchased at the correct age
Which of the following is considered to be an alternative to a life settlement?
Accelerated death benefit rider
Waiver of premium rider
Extended term option
Decreasing term insurance
Accelerated death benefit rider
What is an insurer required to do when faced with an error made under the Misstatement of Age provision?
Cancel the policy
Pay age-corrected benefits
Pay full benefits as stated in the policy
Bill the policyowner for back premiums
Pay age-corrected benefits
An error was made on Mary's life insurance application. Which of the following areas are errors commonly made on applications for which the incontestable clause does NOT apply?
Marital status
Age
Address
Income
Age
Ownership of a life insurance policy may be temporarily transferred with a(n)
collateral assignment
absolute assignment
transferable assignment
beneficiary assignment
collateral assignment
Over the course of a year, which premium payment mode is most expensive?
Monthly
Quarterly
Semi-Annually
Annually
Monthly
Sharon is the policyowner of a $50,000 life insurance policy. Her son, Mike, is the beneficiary. If Sharon MUST obtain Mike's signature in order to change the beneficiary, what kind of beneficiary designation is this?
Tertiary
Contingent
Revocable
Irrevoc
Irrevocable
Level premium term life insurance policies
build cash value in a separate account
automatically convert to permanent insurance at a predetermined date
automatically renew at predetermined dates
have premiums that are averaged over the policy period
have premiums that are averaged over the policy period
Which settlement option involves having the proceeds remain with the insurer and earnings paid on a monthly basis to the beneficiary?
interest only
dividends only
extended interest
fixed period
interest only
If the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if
the insured outlived the beneficiary
the beneficiary outlived the insured
both the insured and beneficiary died at the same time
the estate was listed
the insured outlived the beneficiary
The premium payment mode that results in the highest overall cost would be
monthly
quarterly
semi-annual
annual
monthlymonthly
How does life insurance create an immediate estate?
Cash value may be borrowed upon at any time
Nonforfeiture options are immediately available
The insured's estate receives the death benefit
After first premium is paid, the face amount may be available t
After first premium is paid, the face amount may be available to the beneficiary
Naming a contingent beneficiary as "all surviving children" is described by which term?
Contingent designation
Primary designation
Class designation
Tertiary designation
Class designation
Which type of beneficiary should be named if the insured wants to give explicit directions on how the policy proceeds should be paid?
Individual
Group
Class
Estate
Individual
What is created after policy proceeds are obtained in a lump sum and then immediately invested?
Viatical Settlement
Emergency Fund
Lump Sum Fund
Estate
Estate
Purchasing a life insurance policy in order to avoid the forced sale of assets upon death is called
estate funding
capital withholding
capital gains
estate conservation
estate conservation
A policyowner is prohibited from making any changes to the policy without the beneficiary's written consent under which beneficiary designation?
Contingent beneficiary
Tertiary beneficiary
Revocable beneficiary
Irrevocable beneficiary
Irrevocable beneficiary
A policyowner can receive an immediate payment before the insured dies by using a(n)
viatical settlement contract
buy-sell arrangement
adhesion agreement
spendthrift plan
viatical settlement contract
An example of naming a beneficiary by class would be
"To the children born of my union with Ned Jackson: David Jackson, Jennifer Jackson, and Scott Jackson"
"To the child born of my union with Ned Jackson: Scott Jackson"
"To the children born of my union
To the children born of my union with Ned Jackson
A policyowner can receive a percentage payment of the death benefits prior to death by using what kind of contract?
Viatical settlement agreement
Funding medium agreement
Split dollar plan
Buy-sell plan
Viatical settlement agreement
Pat is insured with a life insurance policy and Karen is his primary beneficiary. They are both involved in an automobile accident where Pat dies instantly and Karen dies 5 days later. Which policy provision will protect the rights of the contingent benef
Common disaster clause
Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors?
Spendthrift Clause
Protection Clause
Viatical Clause
Settlement Clause
Spendthrift Clause
Which of these is considered a major tax advantage of life insurance?
Tax credits are available for life insurance premiums paid
Annual earnings are tax free
Premiums are tax deductible by an employee if paid for by an employer
Income tax is typically not
Income tax is typically not owed on proceeds paid directly to a beneficiary
Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident?
primary beneficiary's estate
contingent beneficiary
insured's estate
children of the insured
contingent beneficiary
Mortality is calculated by using a large risk pool of
hobbies and time
people and time
family history and geographical area
insurance companies and agents
...
What would be an expense factor in an insurance program?
Premiums collected
Mortality costs
Opportunity costs
Investment interest
Mortality costs
How is the cost of a policy affected when a policyowner pays premiums more frequently?
Not affected
Increases
Decreases
Depends on the type of coverage
Increases
Proceeds from a life insurance policy are protected from the beneficiary's creditors by which clause?
protection clause
creditor clause
spendthrift trust clause
beneficiary trust clause
spendthrift trust clause
Which of these premium payment frequencies is not typically available to a policyowner?
Bi-weekly
Monthly
Quarterly
Semi-annual
Bi-weekly
Which of the following enables a life policy to be replaced with another life policy and results in the postponement of the tax consequence?
Section 1040 exchange
Section 1035 exchange
Nonforfeiture Option
Spendthrift Option
Section 1035 exchange
A tax-free Section 1035 Exchange of a life insurance policy to a different policy is permitted if it occurs
in the same state as the original transaction
within a 12 month period
from insurer to insurer and no cash is received by the policyowner
from agen
from insurer to insurer and no cash is received by the policyowner
The premium payment mode that results in the least overall cost would be
monthly
quarterly
semi-annual
annual
annual
Which of these is affected by the frequency of an insurance policy's premium payments?
Settlement options
Cash value
Death benefit
Cost
Cost
A beneficiary has just received a claim payment for a life insurance policy. Which of the following is TRUE regarding the federal income tax liability owed?
A flat tax of 10% is owed on all proceeds
Federal income tax is owed if proceeds exceed $250,000
N
No federal income tax is owed on life insurance proceeds
What is the primary feature of a viatical settlement?
No interest on policy loans
Reduced death benefit prepayment
Longer contestable period
Lower premiums
Reduced death benefit prepayment
What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured?
Policy Dividend
Specified amount of money
Policy's cash value
Funeral expense fund
Specified amount of money
What happens to the total amount of premium paid for an insurance policy when the payment frequency increases?
No difference in cost
Decreases
Increases
Depends on the type of coverage
Increases
Which of these factors help determine an insured's life insurance premium?
insured's salary
marital status
place of residence
avocation (hobby)
avocation (hobby)
A method of marketing group benefits to employers who have a small number of employees is the
MET
Blanket Life Insurance
ART
Small Employer Trust
MET
(A method of marketing group benefits to employers who have a small number of employees is the multiple employer trust (MET). METs may provide a single type of insurance (such as health insurance) or a wide range of coverage (life, medical expense, an
Under a group life policy, the insurer will issue an individual _____ to the policyowner for delivery to each person insured.
policy
certificate
application
rider
certificate
What are blanket life policies?
Policies that are mass-marketed
Policies that cover everyone in a household
Policies that are issued by the Guaranty Association covering multiple insurers
Policies that cover a group of people exposed to a common hazard
Policies that cover a group of people exposed to a common hazard
(Blanket life insurance covers a group of people exposed to a common hazard. Individuals do not need to apply for blanket coverage and insurers do not need to provide each person with a cert
Which of the following makes a group life policy different from an individual life policy?
Higher premium
Higher underwriting costs
Individual underwriting
Lower premiums
Lower premiums
(The primary reason for a group life plan having lower premiums is the lower administrative, operational, and selling expenses associated with servicing one contract, as opposed to several individual contracts.)
When an employer pays the entire premium of a group plan, the plan is called
Rebating
Waiver of premium
Contributory
Noncontributory
Noncontributory
(In a noncontributory plan, an employer pays the entire premium and the employee is not expected to contribute.)
The insured is which one of these in group life insurance?
Applicant
Policyowner
Beneficiary
Certificate holder
Certificate holder
(Each employee eligible to participate in the plan fills out an enrollment card and is given a certificate of insurance, which summarizes the coverage terms and explains the employee's rights under the group contract.)
In group life policies, individual certificates are given to
Each policyholder
Each insured
Each applicant
The insurance agent
Each insured
(Each employee eligible to participate in a group plan fills out an enrollment card and is given a certificate of coverage. This certificate summarizes the coverage terms and explains the employee's rights under the group contract.)
The coverage, conditions, and limitations in the master policy of a group contract can be found in which document?
Certificate of Authority
Consumer report
Coverage document
Certificate of coverage and benefits
Certificate of coverage and benefits
Group insurance plans that require employees to pay a portion of the premium are called
underwritten
contributory
participatory
shared
contributory
Which of the following statements regarding group life insurance plans is CORRECT
The employee is generally responsible for paying the entire premium.
Group insurance, per unit of benefits, is available at rates lower than those for individuals.
An employ
Group insurance, per unit of benefits, is available at rates lower than those for individuals.
(Group insurance generally is available at rates lower than those for an individual because of the lower administrative, operational, and selling expenses assoc
In an employer group plan, what is the name of the policy issued to the employer?
Certificate of insurance
Certificate of authority
Group contract
Master contract
Master contract
All of the following are distinguishing characteristics of group life insurance EXCEPT
Flow of insureds
Group underwriting
Master contract
Individual policies
Individual policies
All of the following statements about group life insurance for employees are true EXCEPT
The policy is issued to the employer
Evidence of insurability is normally required of each participant
Premiums may be paid jointly by the employer and the employees
Evidence of insurability is normally required of each participant
Insurers require that a minimum number of trade association member employees participate in a group insurance plan in order to
maximize premium income
minimize adverse selection
calculate valid loss ratios
lower plan expenses
minimize adverse selection
(The larger the group to be insured, the more predictable will be the expected losses from the group.)
Tim is covered under a group plan and would like to change his group coverage to an individual policy with the same insurer because of employment termination. Which of these describes the change that will take place?
Coordination of benefits
Conversion
Ex
Conversion
Abbey's employer recently made group insurance available for its employees as a benefit. After filling out her enrollment card, she is given a(an)
policy
receipt
certificate of insurance
application
certificate of insurance
(This summarizes the coverage terms and explains the employee's rights under the group contract. In these cases, the employer is the applicant and contract policyholder.)
A non-contributory health insurance plan helps the insurer avoid
adverse selection
state compliance
the underwriting process
tax deductions
adverse selection
(Because all eligible employees are usually covered, noncontributory plans are desirable from an underwriting standpoint because adverse selection is minimized.)
Converting a group plan to permanent life insurance involves
submitting proof of insurability
paying a lower premium
converting to term life insurance
the conversion being applied within 1 month of termination
the conversion being applied within 1 month of termination
All of the following conditions are included in group credit life programs EXCEPT
Premiums are usually paid by the borrower
The amount of insurance per borrower is limited
Benefits are paid to the borrower's beneficiary
Benefits are paid to the creditor
Benefits are paid to the borrower's beneficiary (Benefits in a credit life policy are normally paid to the creditor.)
State insurance laws generally allow a number of groups to hold blanket life insurance policies. All of the following are examples of groups eligible for blanket life insurance EXCEPT
A school covering students, teachers, or employees.
Members of a sports
A start up company to cover the health insurance needs of its employees
(Blanket life insurance policies cover eligible groups for blanket LIFE insurance , not health insurance.)
To what is a group life plan in which the employer pays the entire cost commonly referred?
Contributory plan
Noncontributory plan
Group permanent plan
Group paid-up plan
Noncontributory plan
Which of the following statements about the certificate of insurance is true?
It is a binding contract between the employee and the insurer
It serves as evidence of an employee's coverage
It is issued to the employer
It is used only when accidental death
It serves as evidence of an employee's coverage
The conversion privilege under a group life plan allows an employee to convert to a(n)
family plan with another insurer
individual plan with another insurer that has better rates
individual plan upon employment termination
individual policy in the spouse'
individual plan upon employment termination
The type of insurance most frequently used in group life plans is
annually renewable term.
10-year renewable term.
limited pay whole life.
single-premium whole life.
annually renewable term.
(Annual renewable term insurance gives the insurer the right to increase the premium each year (based on the group's rating) and gives the policyholder the right to renew coverage each year.)
All of these are requirements of a group life plan EXCEPT
A minimum number of participants are required
The cost of the plan is dictated by average age of group
Participants receive a certificate of coverage
Participants are required to provide evidence o
Participants are required to provide evidence of insurability
A group life insurance plan must insure all eligible employees if the
Group was formed for the express purpose of obtaining insurance
Employer pays the entire premium
Employees are covered under a retirement plan
Employer pays for a group health insurance
Employer pays the entire premium
What does the Group Life underwriting risk selection process help protect insurance companies from?
Risk aversion
Natural selection
Adverse selection
Risk management
Adverse selection
If an employee wants to enter the group outside the open enrollment period, the insurer may
Require evidence of insurability
Require a higher premium
Require an extended open enrollment period
Require physical exams on existing members
Require evidence of insurability
(If an employee does not enroll in the plan during the enrollment period (typically 31 days), the employee may be required to provide evidence of insurability if enrollment is desired at a later date. This is to protect th
All of the following employees would normally be excluded from a group term life plan EXCEPT
A full-time employee who has been on the job 2 years
Employee who works part time each week
Employee who works less than 3 months a year
Employee with less than 3
A full-time employee who has been on the job 2 years
Most employers will establish benefit schedules according to all of the following EXCEPT
Earnings
Age
Employment Positions
Flat Benefit
Age
(Most employers will establish benefit schedules based on an employee's earnings or position within the company. A flat benefit to each employee may also be an option. An employee's age is not taken into account.)
A type of group that has a constitution and bylaws and has been organized for purposes other than obtaining insurance is called a(n)
employer group
employee group
association or labor group
multiple coalition
association or labor group
(They are organized and maintained in good faith for purposes other than obtaining insurance.)
Jackie has just signed up to participate in her employer's franchise life insurance program. Which of the following statements is CORRECT?
She may not continue the policy if she terminates employment.
As the "sponsor" of the program, her employer collects
As the "sponsor" of the program, her employer collects premiums from her and remits them to the insurance company.
(Franchise life insurance is a form of group insurance covering employees of a common employer or are members of a common association. The e
An employee under a group insurance policy has the right to name a beneficiary and the right to
remain on the group plan in the event of employment termination
cash surrender the existing policy
change the policy provisions
convert to an individual policy
convert to an individual policy in the event of employment termination
All of the following statements pertaining to the conversion privilege of group term life insurance are correct EXCEPT
An insured employee typically has 31 days following termination of employment in which to convert the group insurance.
An insured employ
An insured employee must convert to the same type of coverage that was provided under the group plan (that is, term).
(Most group conversion provisions require the individual to convert the coverage under a group term plan to a whole life policy.)
If an employee in poor health is part of a large group that is acceptable for group life insurance, that employee is
ineligible for coverage under the plan
eligible for coverage, but on a rated basis
eligible for the same type of coverage as other employe
eligible for the same type of coverage as other employees
Which of these factors would an insurer consider when determining whether to accept a group life plan?
Number of dependents
Incontestable period
Average age
Grace period
Average age
If group life insurance premiums are paid totally by the employer, the minimum percent of eligible employees required to be covered is
25%
50%
75%
100%
100%
What action may the insurer take on future policy anniversaries after a group life master policy has been issued?
Cancel insurance on group members who become terminally ill
Insurer can make no changes to policy
Insurer can deny claims after a group has e
Insurer can adjust premium
(Most group life plans are term plans, which use annual renewable term (ART) insurance for the underlying policy. This gives the insurer the right to increase the premium each year (based on the group's experience rating), and i
Which of the following is NOT considered to be a group permanent plan?
Group ordinary
Group credit
Group universal
Group paid-up
Group credit
Simon has purchased a fixed immediate annuity. His payment amount will be dependent upon principal, interest, and the contract's
surrender charge
death benefit
cash refund
income period
income period
How do interest earnings accumulate in a deferred annuity?
On a tax credit basis
On a tax-deferred basis
On a tax-free basis
On a taxable basis
On a tax-deferred basis
Under a non-qualified annuity, interest is taxed after the
deposits have been made
death of the annuitant
distribution of payments
exclusion ratio has been calculated
exclusion ratio has been calculated
(The taxable and non-taxable portions of annuity payments are determined by the exclusion ratio.)
Who assumes the investment risk with a fixed annuity contract?
The owner
The annuitant
The insurer
The beneficiary
The insurer
(It is the insurance company that bears the investment risk of a fixed annuity. The insurance company guarantees the annuitant's principal as well as a guaranteed minimum rate of return, even if the underlying assets underperform the guarantee
Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?
Fixed period
Interest only
Installment refund
Life income
Life income
Which type of annuity stops all payments upon the death of the annuitant?
Life annuity
Period certain annuity
Cash refund annuity
Joint and survivor annuity
Life annuity
Which of these statements regarding the annuitant is CORRECT?
The contract can only be assigned by the annuitant
The annuitant is the only individual who can surrender the contract
The annuitant must also be the beneficiary
The annuitant's life expectancy
The annuitant's life expectancy determines the annuity payments
Fixed period settlement options are considered to be a form of a(n)
cash value loan
variable life policy
annuity
Endowment
annuity
An annuitant dies during the distribution period. What kind of annuity will return to a beneficiary the difference between the annuity value and the income payments already made?
Variable annuity
Refund annuity
Rebate annuity
Return annuity
Refund annuity
Which of these is NOT considered to be a purpose of an annuity?
Annuities are intended to create an estate
Annuities are intended to liquidate an estate
Annuities are intended for the tax-free growth of principal
Annuities are intended to distribute accum
Annuities are intended to create an estate
Lisa has recently bought a fixed annuity. Which of these is considered to be a disadvantage of owning this type of annuity?
Payments cease 5 years after the annuitant's death
During periods of inflation, annuitants will experience an increase in purchasin
During periods of inflation, annuitants will experience a decrease in purchasing power of their payments
An annuity is primarily used to provide
retirement income
disability income
long-term care benefits
death benefits
retirement income
If the annuitant dies before the annuity start date,
the benefits will be given tax-free only to a stated beneficiary
nothing is given to the beneficiary
the premiums paid will be given to the beneficiary
the premiums paid plus interest earned will be giv
the premiums paid plus interest earned will be given to the beneficiary
What happens to interest earned if the annuitant dies before the payout start date?
It is taxable
It is taxable only if no beneficiary is named
It is not taxable
It is only taxable if contract has been in force under one year
It is taxable
Kathy's annuity is currently experiencing tax-deferred growth until she retires. Which phase is this annuity in?
Payout period
Accumulation period
Deferred period
Growth period
Accumulation period
Which market index is normally associated with an indexed annuity's rate of return?
NAIC
SEC
S & P 500
A & P 300
S & P 500
An immediate annuity has been purchased with a single premium. When does the annuitant typically begin receiving benefit payments?
1 month
6 months
12 months
24 months
1 month
Which type of annuity guarantees a stated number of income payments, whether or not the annuitant is still alive to receive them?
Life annuity certain
Secure life annuity
Irrevocable survivor annuity
Guaranteed life annuity
Life annuity certain
How soon can the benefit payments begin with a deferred annuity?
Anytime after date of purchase
Anytime within 12 months after date of purchase
A minimum of 6 months after date of purchase
A minimum of 12 months after date of purchase
A minimum of 12 months after date of purchase
Which of these will have the highest monthly payout upon annuitization?
Life with period certain
Joint and survivor life
Straight life
Joint life
Straight life
Which of the following annuity payout options makes no additional payments regardless of when the annuitant dies?
Life only
Life with period certain
Cash refund
Installment refund
Life only
During the accumulation period, who can surrender an annuity?
Payor
Annuitant
Beneficiary
Policyowner
Policyowner
(The policyowner is the only one who can surrender an annuity during the accumulation period.)
What is the nonforfeiture value of an annuity before annuitization?
All premiums paid
All premiums paid plus interest
All premiums paid minus any withdrawals and surrender charges
All premiums paid, plus interest, minus any withdrawals and surrender charg
All premiums paid, plus interest, minus any withdrawals and surrender charges
Which of these annuities require premium payments that vary from year to year?
Flexible premium immediate annuity
Flexible premium deferred annuity
Fixed premium deferred annuity
Fixed premium immediate annuity
Flexible premium deferred annuity
When does an immediate annuity begin making payments?
After multiple premiums have been paid
After the first premium has been paid
After policy has been active for one year
After the incontestable period
After the first premium has been paid
The taxable portion of each annuity payment is calculated using which method?
Exclusion Ratio
Taxable Ratio
Cost Basis
Tax Basis
Exclusion Ratio
Which of the following is considered to be the period when the accumulated value in an annuity is paid out?
Annuitization phase
Accumulation phase
Principal phase
Period certain phase
Annuitization phase
How long must an individual be unable to engage in any gainful activity due to physical or mental disability in order to qualify for Social Security Total Disability?
3 months
6 months
12 months
18 months
12 months
Larry died in an automobile accident. His survivors are eligible for limited Social Security benefits. Larry's insured status was
Partially insured
Insured
Conditionally insured
Half insured
Partially insured
(To be considered partially insured, a worker must have earned 6 credits during the 13-quarter period ending with the quarter in which the worker died.)
Which of the following does the FICA tax fund
Social Security(OASDI) and Unemployment benefits
Medicare and Railroad Retirement System benefits
Unemployment and Medicaid benefits
Social Security(OASDI) and Medicare benefits
Social Security (OASDI) and Medicare benefits
(A majority of FICA tax is used to fund Social Security benefits. The remaining portion funds Medicare benefits.)
Under Social Security disability requirements, a worker is fully insured on a permanent basis after having worked in a covered occupation for:
10 quarters
20 quarters
30 quarters
40 quarters
40 quarters
(To obtain fully insured status, a covered worker must accrue a total of 40 quarters of credit, which is about 10 years of work.)
How long does the elimination period last for a Social Security Disability claimant?
12 months
5 months
0 months
6 months
5 months
(Social Security Disability benefits are subject to rigid requirements. Disability benefits begin after the worker has satisfied a waiting period of 5 consecutive months, during which the worker must be disabled. The disability must be expected t
How does one qualify as a fully-insured individual under Social Security disability coverage?
Individual has been credited with the appropriate number of quarters of coverage
Individual is currently covered under Medicaid
Individual is expected to be disa
Individual has been credited with the appropriate number of quarters of coverage
Which of the following examples pertaining to
Social Security benefits is CORRECT?
-Simon was a fully employed worker at the time of his death. His surviving spouse will receive a lump-sum death benefit of $2,250.
-Lola, age 30, has a daughter, age 10. He
Mason, who is married with one son, age 16, is a fully insured retired worker receiving Social Security benefits. In addition, his spouse is eligible for benefits at age 62 and his son is eligible for benefits until he is 18 years old.
(The spouse of any
Social Security is funded by a payroll tax imposed on a limit of an employee's income. What is this limitation called?
Taxable wage base
Maximum wage limit
Average monthly wage (AMW)
Average indexed monthly earnings (AIME)
Taxable wage base
(This payroll, or FICA tax, is applied to employees' incomes up to a certain limit, called the taxable wage base.)
Delores just received her first Social Security Disability payment. What can we correctly assume about her?
Her disability is expected to last at least 12 months
She is at least 65 years old
She has applied for Medicare
She became disabled 12 months ago
Her disability is expected to last at least 12 months
(The qualification for Social Security Disability benefits is subject to rigid requirements. One of these requirements states the disability must be the result of a physical or mental impairment expect
An insured's status under Social Security can be described as
partially insured
actively insured
fully insured
completely insured
fully insured
(There are two types of insured statuses that qualify individuals for Social Security benefits: fully insured and currently insured. Most Social Security benefits are paid to fully insured individuals.)
All of the following statements correctly describe the purpose of Social Security EXCEPT
It provides a source of income for a meaningful standard of living during retirement
It provides basic protection against financial problems accompanying death, disab
It provides a source of income for a meaningful standard of living during retirement
Social Security benefits include all of the following, EXCEPT
Unemployment benefits
Disability benefits
Retirement benefits
Medicare benefits
Unemployment benefits
In determining Social Security retirement benefits, which of the following statements is CORRECT?
Average monthly wages (AMW) are adjusted for inflation.
The Primary Insurance Amount (PIA) determines the worker's average indexed monthly earnings (AIME).
T
The PIA is a determination of the amount equal to the worker's full retirement benefit at the worker's full retirement age.
(The Primary Insurance Amount (PIA) is the amount equal to the worker's full retirement benefit at age 65. )
The primary insurance amount (PIA) is equal to
1/2 worker's retirement benefit at 62
1/2 worker's retirement benefit at 65
Full worker's retirement benefit at 62
Full worker's retirement benefit at 65
Full worker's retirement benefit at 65
(The PIA is actually the amount equal to the worker's full retirement benefit at age 65 (benefits are reduced for early retirement) or benefits to a disabled worker. Benefits payable to workers and their spouses and
FICA tax is applied to an employee's income up to a certain income amount. This amount is called
average monthly wage
taxable wage base
average indexed monthly earnings
primary insurance amount
taxable wage base
The period in which there are no Social Security benefits for the surviving spouse is called the
blackout period
elimination period
ineligible period
dependency period
blackout period
(The blackout period begins when the youngest child turns 16 and continues until the spouse reaches age 60, at the earliest. If there are no eligible children with the surviving spouse when the breadwinner dies, the blackout period starts
What is the formal name for Social Security?
Qualifed Age Survivors Disability Insurance
Advanced Age Survivors Disability Insurance
Retirement Age Survivors Disability Insurance
Old Age Survivors Disability Insurance
Old Age Survivors Disability Insurance
(The Social Security program, enacted in 1935 and administered at the federal level by the Social Security Administration, is more formally called OASDI. This acronym aptly identifies the types of protection provided
How is Social Security (OASDI) funded?
Federal grants
Sales taxes
Treasury Bonds
Payroll taxes
Payroll taxes
(OASDI is supported by a payroll tax, paid by employees, employers, and self-employed individuals.)
Individuals covered by Social Security include all of the following EXCEPT
Small business owners
State workers who are not covered by state pension plans
Federal employees (after 1984)
Railroad workers
Railroad workers
(Railroad workers are covered under a separate federal program, the Railroad Retirement System.)
If Martha would like to receive Social Security retirement benefits prior to age 65, at what age can she do this?
60
62
She cannot receive benefits prior to age 65
Whenever she has accumulated the required work credits
62
What is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called?
Accumulation period
Nonpayment period
Blackout interval
Blackout period
Blackout period
(The blackout period begins when the youngest child turns 16 and continues until the spouse reaches age 60, at the earliest. If there are no eligible children with the surviving spouse when the breadwinner dies, the blackout period starts
Rudy is eligible for full death, retirement, and disability benefits under Social Security. His worker status is
completely insured
currently insured
fully insured
partially insured
fully insured
Jessica, a widow, stopped receiving survivor Social Security benefits when her son turned 16. At what age will she be eligible to start receiving benefits again?
65
59 1/2
60
62
60
Jan, a single, working mother, dies at age 40. Dave, her only son, would receive a one-time lump-sum benefit of
$255
$500
$1,000
$2,555
$255
(The maximum lump-sum death benefit to a deceased worker's surviving spouse or children is $255.)
Under Social Security, in order to be considered fully insured, the worker must have worked how many years and received how many quarters?
40 years and 10 full quarters
10 years and 40 full quarters (Workers are fully insured if they have accumulated the
10 years and 40 full quarters
(Workers are fully insured if they have accumulated the required number of credits based on their age. For most people, the required number of credits is 40 (representing approximately 10 years of work).)
Which one of the following is NOT covered by Social Security
Self-employed worker
Business owner
Railroad worker
Insurance salesman
Railroad worker
Rob has a benefit at work which enables him to defer his current receipt of income and have it paid at a later date, when he will probably be in a lower tax bracket. Which benefit fits this description?
Key person IRA
Period certain annuity
Deferred compe
Deferred compensation option
A qualified retirement plan is "top heavy" when
More than 20% of participants are highly compensated
More than 20% of annual additions are for key employee accounts
Fewer than 60% of employees benefit by the plan
More than 60% of plan assets are in key em
More than 60% of plan assets are in key employee accounts
(A plan is considered to be top heavy if more than 60% of plan assets are attributable to "key employees" as of the last day of the prior plan year.)
Which of these retirement plans do NOT qualify for a federal income tax deduction?
SIMPLE Plan
Traditional IRA
Keogh Plan
Roth IRA
Roth IRA
An example of a tax-qualified retirement plan would be a(n)
equity compensation plan
defined contribution plan
executive index plan
1035 exchange plan
defined contribution plan
When a qualified plan starts making payments to its recipient, which portion of the distributions is taxable?
Principal
Contributions made by employee
Contributions made by employer
Gains
Gains
A Roth IRA owner must be at least what age in order to make tax-free withdrawals?
59 1/2 and owned account for a minimum of 10 years
59 1/2 and owned account for a minimum of 5 years
70 1/2 and owned account for a minimum of 10 years
70 1/2 and owned acco
59 1/2 and owned account for a minimum of 5 years
The IRS levies an excise tax on retired individuals over a certain age who do not take the required minimum distribution from a qualified retirement plan. What is the excise tax rate?
20%
30%
50%
60%
50%
(Distributions must be made by April 1 following the year the participant turns age 70 1/2, or a 50% excise tax will be assessed on the amount that should have been withdrawn.)
The penalty tax incurred for premature distributions from an IRA is:
5%
10%
20%
50%
10%
Which of the following is NOT a federal requirement of a qualified plan?
Must benefit a broad cross-section of employees
Employee must be able to make unlimited contributions
Vesting schedule must be defined
Employer establishes the plan
Employee must be able to make unlimited contributions
Which statement about traditional individual retirement accounts is true?
Funds withdrawn from an IRA after age 60 are not subject to income tax
Only workers covered by other pension plans are eligible for IRAs
A 10% penalty generally must be paid on fund
A 10% penalty generally must be paid on funds withdrawn prior to age 59 1/2
The annual addition to an employee's account in a qualified retirement plan
can be any amount as determined by the end of year to year
must be the same dollar amount for every full time employee
cannot exceed the maximum limits set by the Internal Revenue
cannot exceed the maximum limits set by the Internal Revenue Service
How much tax is withheld from funds that are transferred directly from one IRA to another IRA?
10%
15%
50%
None
None
Which of the following would disqualify a company's retirement plan from receiving favorable tax treatment?
Contains a vesting schedule
Contributions are applied with no regard to income
Formed for the sole benefit of employees and their beneficiaries
It
It is temporary
An IRA owner names the spouse beneficiary. What is true if the owner dies before any distributions are made?
All future distributions are forfeited
The surviving spouse can roll the account into an IRA
Distributions must begin within six month of the dece
The surviving spouse can roll the account into an IRA
(A surviving spouse who inherits IRA benefits or benefits from the deceased spouse's qualified plan is eligible to establish a rollover IRA in the surviving spouse's own name.)
Which type of retirement plan sets aside a portion of the firm's net income for distributions to employees who qualify under the plan?
Defined benefit plan
Noncontributory retirement plan
Profit-sharing plan
Pension trust plan
Profit-sharing plan
Which of the following employers is required to follow ERISA regulations?
A local government with 150 employees
A church with 30 employees
A local electrical supply company with 12 employees
A Canadian company with 300 employees working in the United Stat
A local electrical supply company with 12 employees
Upon retiring at age 60, an employee requested the 401(k) plan trustee to issue a check payable to the employee for the entire accrued benefit in the employee's account. The funds were immediately rolled over into an IRA. The 401(k) distribution will be
S
Included in gross income for tax purposes
(In this situation, the 401(k) distribution will be included in gross income for tax purposes because the plan participant took physical receipt of the distribution before its rollover to the IRA.)
Which of these statements concerning Traditional IRAs is CORRECT?
Earnings are not taxable when withdrawn
Earnings are taxable when withdrawn
Contributions are never tax-deductible
Contributions are always made by the employer
Earnings are taxable when withdrawn
Which is true about the income tax withholding requirements for eligible rollover funds received personally by a participant in a profit-sharing plan?
A 10% mandatory withholding rate applies
A 20% mandatory withholding rate applies
A 50% mandatory withho
A 20% mandatory withholding rate applies
(A plan sponsor must withhold 20% of the distribution in federal taxes on a rollover. Once the rollover takes place to a new custodian, the remainder of the distribution is made.)
All of the following are types of insurance policy exchanges that can be made without current taxation EXCEPT:
The exchange of an annuity for a life insurance policy
The exchange of a life insurance policy for an annuity
An annuity exchanged for another a
The exchange of an annuity for a life insurance policy
(The 1035 exchange does not allow for an annuity to be exchanged for a life insurance policy. This is not considered an equal exchange and will be taxed.)
Distributions from a traditional individual retirement annuity (IRA) must begin by
The participant's 65th birthday
The participant's 70th birthday
December 31st of the year the participant turns 70 1/2
April 1st of the year following the year the particip
April 1st of the year following the year the participant attains age 70 �
Qualified distributions from a Roth IRA are
Fully taxable in the year received
Taxable only on amounts over the aggregate
Subject to a 10% penalty tax
Received income tax free
Received income tax free
Within how many days must a Traditional IRA be rolled over to another IRA in order to avoid tax consequences?
30
45
60
90
60
Within how many days must a rollover be completed in order to avoid being taxed as current income?
30
60
90
120
60
An individual, age 45, received a distribution of $15,000, less $3,000 income tax withholding, from a former employer's 401k plan. None of the money was rolled over. Which federal taxes apply?
Only income taxes on $15,000
Only income taxes on $12,000
Inco
Income taxes plus a 10% penalty tax on $15,000 (All withdrawals from a qualified retirement plan are taxable as current income. In addition, any withdrawals made before age 59 1/2 is subject to an additional tax penalty of 10% of the amount withdrawn.)
All of the following are exempt from the 10% tax penalty for early qualified plan withdrawals EXCEPT
Qualified college expenses
First time home purchase
Death of the participant
Stock purchase
Stock purchase
(Withdrawing funds from a qualified plan for the purpose of purchasing stocks or other securities would trigger a 10% tax penalty.)
One of the purposes of a qualified profit-sharing plan is to
Motivate management to achieve a 25% profit margin
Distribute a portion of company earnings to employees
Liquidate the assets of a corporation
Reward the stockholders of a corporation
Distribute a portion of company earnings to employees
Who were Keogh plans designed to provide pension benefits for?
Corporate officers
Public school employees
The self-employed
Government employees
The self-employed
Dana is an employee who deposits a percentage of her income into her individual annuity. Her company also contributes a percentage into a separate company pension plan. What kind of annuity is this considered?
Qualified retirement annuity
Key employee ret
Qualified retirement annuity
Rollover contributions to an individual retirement annuity (IRA) are
Limited to 15 percent of the participant's compensation
Limited to $2,000 per year
Limited to $35,000 per year for married parties
Unlimited by dollar amount
Unlimited by dollar amount
A qualified plan participant elected a trustee-to-trustee transfer of rollover funds instead of personally receiving the funds and then rolling them over. The election permits the participant to
Avoid mandatory income tax withholding on the amount transfe
Avoid mandatory income tax withholding on the amount transferred
(There is no federal tax withholding involved in a transfer of funds from one qualified plan into another. Rollovers, however, involve a 20% withholding. Once the rollover takes place to the
How are contributions made to a Roth IRA handled for tax purposes?
Fully tax deductible
Not tax deductible
Partially tax deductible
Conditionally tax deductible
Not tax deductible
Which of the following is generally assessed when a participant receives retirement savings from an IRA before reaching age 59 1/2?
Income tax only
A penalty tax only
Income tax and a penalty tax
Capital gains tax
Income tax and a penalty tax
Which of the following types of employee welfare plans is specifically exempt from regulation under ERISA?
Church plans
Blue Cross-Blue Shield plans
Hospital benefit plans
Accidental plans
Church plans
To be eligible to establish a SIMPLE retirement plan, an employer can have a maximum of how many employees earning at least $5,000?
25
50
100
250
100
A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a
cross purchase plan
split-dollar plan
key person plan
deferred buy-sell plan
cross purchase plan
(Under a cross purchase plan, the partners individually agree to purchase the interest of a deceased partner. Each partner is the owner, payor, and beneficiary of the life insurance on the lives of the other partners.)
What is the tax advantage of key-person life insurance?
Premiums are tax deductible
Death proceeds are nontaxable
Proceeds are deferred
Cash value increase is taxed at a low rate
Death proceeds are nontaxable
When calculating the amount of life insurance needed for an income earner, what has to be determined when using the Needs Approach?
The income earner's future projected income
The family's financial objectives if the income earner were to die or become di
The family's financial objectives if the income earner were to die or become disabled
Life insurance can be used in business in all of the following ways EXCEPT
as a funding medium
as a profit sharing plan
as a form of business interruption insurance
as an employee benefit
as a profit sharing plan
All of the following are considered to be costs associated with an individual's death EXCEPT
Estate taxes
Probate costs
Business expenses
Burial expenses
Business expenses
Which of the following statements about key person insurance is CORRECT?
The key employee's family is the beneficiary of the policy.
The death proceeds are taxable.
The business may take a tax deduction for premiums paid.
It can be considered a business a
It can be considered a business asset. (Complete control of the policy rests with the business, which means key person insurance can be considered a company owned asset not earmarked for any specific purpose.)
Which plan can be used as an incentive by an employer to help an employee buy life insurance?
Deferred compensation plan
Key person insurance
Sole proprietor buy-sell plan
Split-dollar plan
Split-dollar plan
(In a typical split-dollar plan, the employer and the employee share the premium cost.)
The Human Life Value Approach does not consider which of the following?
Earnings
Investments
Occupation
Savings
Savings
Determining a person's economic value through the human life value approach does NOT consider the effects of
investments
savings
earnings
occupation
occupation
All of the following factors are used in the needs approach for determining the amount of required life insurance EXCEPT
the monthly income
the emergency fund period
the education fund
the percentage of future income
the percentage of future income
(The percentage of future income is not used in the needs approach for determining the amount of required life insurance.)
Robert and his employer agree on the purchase of a split-dollar life insurance policy and the usual split-dollar approach to premium payments. Each year, the employer will contribute to the premium an amount equal to
one-half the premium
the annual divide
the increase in the policy's cash value
(In a typical split-dollar plan, the employer and the employee share the premium cost. Though there are variations, generally the employer's contribution is equal to the increase in the policy's cash value.)
The approach that is used to make life insurance recommendations, determines the total funds available to a family from all sources, and subtracts the amount needed to meet their financial objectives is known as the
Human Life Value approach
Needs approac
Needs approach
(The needs approach analyzes the family's financial needs and objectives should the breadwinner die or become disabled. These needs are then weighed against the ability of the family to meet them out of current or anticipated assets.)
In which business plan do the partners agree to buy the interest of the deceased partner?
Entity
Cross purchase
Stock purchase
Business insurance plan
Cross purchase
(Under the cross-purchase buy-sell plan (the more common approach to a buyout), the partners individually agree to purchase the interest of a deceased partner. The executor of the deceased partner's estate is then directed to sell the inter
All the following statements regarding survivor financial needs are correct EXCEPT
The term dependency period refers to the 20-year period immediately following the insured's death during which the widowed spouse must depend on Social Security
The period
The term dependency period refers to the 20-year period immediately following the insured's death during which the widowed spouse must depend on Social Security
(This is an inaccurate statement. The dependency period refers to that period following the de
Acme Partnership has three individual partners. The partnership itself owns, pays for, and is beneficiary of the life policies that insure the lives of the individual partners. This type of arrangement is called a
partnership cross-purchase plan
partnersh
partnership entity buy-sell plan
(An entity plan states that when a partner dies, that partner's interest is purchased by the partnership. The interest is then divided among the surviving partners.)
All of these are examples of a business use for life insurance EXCEPT
Workers Compensation
Buy-sell funding
Key person
Partnership entity plan
Workers Compensation
Three individuals form a partnership with equal shares valued at $300,000. If they were persuaded to use an "entity" buy-sell plan funded with life insurance, how many policies and for what amounts would be purchased?
One policy for $100,000
Three policie
Three policies for $100,000 each
Three business partners individually agree to acquire the interest of a deceased partner and own life insurance on each of the other partners in the amount of his or her share of the business's buyout value. What is described here is
an entity buy-sell pl
a cross-purchase buy-sell plan
(Under the cross-purchase buy-sell plan (the more common approach to a buyout) the partners individually agree to purchase the interest of a deceased partner. The executor of the deceased partner's estate is then directed to
Which of the following statements regarding deferred compensation plans is CORRECT?
A deferred compensation plan must always be designed as a qualified plan.
Life insurance is not a permissible funding vehicle, but annuities are.
They permit a business to
They permit a business to provide extra benefits to officers, executives, and other highly paid employees.
(Deferred compensation is an arrangement whereby an employee (or owner) agrees to forgo some portion of his or her current income (such as annual ra
All of the following business arrangements can use "insured buy-sell agreements" to assure the orderly continuation of a business EXCEPT
partnership forms of business
close corporations
sole proprietorships
government entities
government entities
The amount that an employer pays for accidental death and dismemberment insurance for its employees is normally
deductible to the business
included in taxable income for each covered employee
recovered upon receipt of the insurance proceeds
considered unn
deductible to the business
Craig purchased a life insurance policy to enable his heirs to pay estate taxes. What is this called?
Estate conservation
Liquidity maintenance
Survivor fund
Human value protection
Estate conservation
A partnership owns, pays for, and is the beneficiary of life insurance policies on the lives of its individual partners. This is known as
an entity buy-sell plan
a stock redemption plan
a cross purchase plan
a Keough plan
an entity buy-sell plan
(With an entity buy-sell plan, a deceased partner's interest is purchased from his or her estate by the partnership. This interest is divided among the surviving partners in proportion to their own interest.)
Needs analysis is a method of life insurance planning which
Identifies the needs of an individual and the individual's dependents
Eliminates the need for estimating future interest and inflation rates
Requires the team effort of the producer and home offi
Identifies the needs of an individual and the individual's dependents
(Needs analysis is a method of life insurance planning which identifies the needs of an individual and the individual's dependents.)
Under a partnership cross-purchase plan, when there are 4 partners, how many policies are needed?
4
12
16
20
12
(With a partnership cross-purchase plan, each partner owns, is the beneficiary of, and pays the premiums for life insurance on the other partner or partners in an amount equal to his or her share of the purchase price.)
With three partners in a business, how many life insurance policies would be required to insure a cross-purchase buy-sell plan?
3
6
9
12
6
(Each partner owns, pays for, and is the beneficiary of an insurance policy on each of the other two partners in a cross-purchase buy-sell agreement.)
Which of the following statements regarding ways to determine the proper amount of life insurance is CORRECT?
The most popular method today for determining the proper amount of life insurance is the human life value approach.
When using the needs approach
There are two basic approaches to determining the amount of life insurance that is needed: the human life value approach and the needs approach.
(The human life value approach and the needs approach are the two basic approaches to determining the amount o
Which of the following statements regarding key person insurance is NOT correct?
Key person life insurance indemnifies a business for financial loss caused by the death of a key employee or key executive.
The business may borrow from the cash value of a p
Premiums for a key person life insurance policy are a tax-deductible expense to the business.
Which of these factors is NOT taken into account when determining an applicant's life insurance needs?
Social Security
automobile
savings
pension
automobile
All of these are legitimate uses of insurance in a business setting EXCEPT
Funding against general company financial loss
Funding against financial loss by the death of a key employee
Funding business continuation agreements
Funding a buy-sell plan
Funding against general company financial loss (Life and health insurance can be used for a variety of reasons in a business setting. Safeguarding against general company financial loss is not one of them.)
A business often buys life insurance on a key employee to:
Take a tax deduction
Pay estate taxes for the key employee
Pay the remaining balance of the key employee's mortgage
Pay for finding and training a replacement if the employee dies prematurely
Pay for finding and training a replacement if the employee dies prematurely
(One reason for a business to purchase key person life insurance is to pay for finding and training a replacement if the employee dies prematurely.)
When a wage earner dies, the surviving family may have all of the following expenses EXCEPT
Final expenses
Unemployment tax liabilities
Family living expenses
Death taxes
Unemployment tax liabilities
If a corporation collects the policy benefit on a key person life policy, which of the following is correct?
Amount received is taxable
Amount received is non-taxable
Amount received is partially taxable
Amount received is subject to exclusionary rule
Amount received is non-taxable
(Key person life insurance receives favorable tax treatment. The death proceeds received by the business are not taxable. Premiums, of course, are not deductible for income purposes.)
Which of these requires an analysis of a family's financial needs and objectives should the breadwinner die or become disabled?
Needs Approach
Human Value Life Approach
Human Needs Approach
Human Value Needs Approach
Needs Approach
(The needs approach requires an analysis of the family's financial needs and objectives should the breadwinner die or become disabled. Those needs are weighed against the ability of the family to meet them out of current or anticipated asse
Which approach predicts a person's earning potential and determines how much of that would be devoted to dependents?
Future value approach
Earnings approach
Needs approach
Human life value approach
Human life value approach
(The human life value approach predicts an individual's future earning potential and determines how much of that amount would be devoted to dependents.)
Which of these is a method of determining the level of funds required for ongoing support in the event of the breadwinner's death?
Financial loss value
Human life value
Assessment value
Replacement value
Human life value
(The human life value calculator helps you assess the financial loss your family would incur if you were to die today.)
What is the reason for key person insurance?
Lessen the risk of financial loss due to the death of a key employee
Provide health and life insurance to families of key employees
Provide retirement benefits to key employees
Lessen the chance of financial lo
Lessen the risk of financial loss due to the death of a key employee
(Key person insurance can lessen the risk of financial loss due to the death of a key employee who has specialized skills, knowledge, or business contacts.)
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