All of the following are true regarding purchase of personal life insurance for charity, EXCEPT:
Coverage is taken out on the life of the person buying the policy.
The charity is named as the beneficiary.
The person buying the policy pays the premiums, which are usually tax-deductible.
*The person purchasing life insurance for charity must have insur
The ____________ approach calculates the amount of money a family needs immediately upon the death of the insured to pay for their expenses and basic necessities.
Needs
Life insurance policies with cash value provide the insured with immediate availability of funds, referred to as:
Liquidity
The ___________ approach calculates the amount of money a person is expected to earn over their lifetime to determine the face amount of life insurance needed, thereby placing a dollar value on the life of an individual.
Human life value
Ben applies for a life insurance policy on himself. How much insurable interest does Ben have in his own life?
Unlimited
The third party that purchases a life insurance policy death benefit from a terminally ill insured is termed:
Viatical settlement provider
The time period during which children are young and financially dependent upon their parents is termed the:
Family dependency period
When must insurable interest be shown for a life insurance policy?
upon policy application
All of the following are true regarding viatical settlements, EXCEPT:
Select one:
A terminally or chronically ill insured can sell their life insurance policy to a third party in exchange for payment of a large portion of the death benefit.
In a viatical settlement, the third party that purchases the insured's life insurance policy is
A furniture company is owned by five partners. What business continuation plan would you suggest to the company?
Entity plan
Which of the following business continuation agreements is most appropriate for Teri and Annette's business partnership?
Cross- purchase plan
All of the following are true regarding executive bonus plans, EXCEPT:
An employer gives an employee a bonus in the amount of the premium payments on a life insurance policy.
The employer pays the premiums, but receives a tax deduction in the amount of the premium because it is treated as a pay raise.
The employee pays incom
What is business life insurance used for?
An employee benefit
A funding tool
Business interruption insurance
Which business continuation plan permits a deceased shareholder's heirs to maintain some ownership while the corporation redeems a portion of the deceased shareholder's shares?
Section 303 Plan
Four partners share in the ownership of a bowling alley. Which of the following business continuation plans best fits their needs?
Entity plan
All of the following are buy-sell agreements, EXCEPT:
Stock redemption plan
Cross-purchase plan
Entity plan
*Split-dollar plan
Betty and Jack have a partnership. If their partnership is worth $800,000 how much life insurance is issued on each partner if a cross-purchase plan is used?
$400,000
What business continuation agreement would you recommend to a corporation with 3 shareholders so that when a shareholder dies, all other shareholders agree to purchase a portion of the deceased shareholder's stock at an agreed price?
Stock purchase plan
Mary's Cosmetics purchases a life insurance policy on Samantha, the leading makeup salesperson in the nation. Which business continuation plan did Mary's Cosmetics buy?
Key persons insurance
Which of the following best describes a business continuation plan intended for a corporation in which the corporation purchases a portion of the deceased stockholder's shares?
Section 303 plan
Acme Fireworks Company needs a business continuation policy to ensure the business ownership is properly transferred in the event a partner dies or becomes disabled. What policy would you recommend if there are 3 partners and the business is a partnership
Cross- purchase plan
Of the following statements, which correctly represents a split-dollar plan?
The employer and employee split premiums and benefits.
Personal life insurance is purchased for all of the following reasons, EXCEPT:
To fund a charitable organization
To accumulate cash
To preserve an estate
*To fund a buy-sell agreement
Which of the following is a nonqualified employee benefit plan that permits employees to postpone some of their earnings on an after-tax basis?
Deferred compensation
Which of the following is a reason a business would buy life insurance?
To provide employee benefits
To insure the lives of key employees
To assure the outlook of the business
Three partners use a buy-sell agreement to assure the business ownership will be properly transferred upon the death of one or more partners. If a cross-purchase plan is used as the business continuation agreement, how many policies will be issued?
6
Smith has a life insurance policy that allows his business partner to purchase his share of the lawn-cutting business upon his death. Smith has a:
Buy-sell agreement
Which of the following plans allows a corporation to redeem a portion of the deceased shareholder's shares without handing over control of the corporation's ownership?
stock- redemption plan
All of the following are true regarding deferred compensation plans, EXCEPT:
Life insurance-funded deferred compensation is an executive benefit that an employer can use to pay a highly paid employee at a later date, such as upon disability, retirement or death.
When the employee retires, the employer surrenders the policy for its
Julian Grocery stores has locations in all 50 states. It is a privately-held corporation. What business continuation agreement does Julian Grocery stores most likely have?
Close corporation stock redemption plan
Comparative Interest Rate Method:
calculates an interest rate that must be earned in a side fund of a buy term and invest the difference, in order for the value of the side fund to be equivalent to the surrender value of the policy that has the higher premium at a specific time. As the CI
Interest-adjusted Net Cost Method:
uses the time value of money to compare policy costs. Interest is applied to policy premiums and dividends to account for the time value of money. There are two versions of this method:
Surrender cost index and
Net payment cost index.
Surrender Cost Index:
measures the cost of an insurance policy by projecting the total amount of cash value in a policy (sum of dividends and cash accrued) and deducting the total cost of premiums after a certain number of years. This method provides a net cost of the policy o
Net Payment Cost Index:
The primary difference between the surrender cost and net payment cost methods is the cash value component. The net payment cost index excludes the cash value and only predicts the average annual premium cost.
LMO Insurer is incorporated in New Hampshire, conducts business in all of the eastern seaboard states and in Germany. How is LMO Insurer classified in Germany?
Alien
An excess and surplus lines insurer is categorized as a(n):
Unauthorized insurance company
All of the following are considered minimum information that must be on a life insurance illustration, EXCEPT:
Form number
Dividend options, if any
Nonguaranteed elements, if any
*Insured's marital status
ABC insurer is incorporated in Texas. Which of the following is true?
ABC insurer is incorporated in Texas, so it is a domestic in Texas, foreign in Louisiana and alien in Great Britain.
All of the following statements regarding unauthorized insurers are true, EXCEPT:
Unauthorized insurers are insurers that are unlicensed because they have not yet applied for a certificate of authority, have applied and been denied licensure, or are excess and surplus lines insurers.
All excess and surplus lines insurers are unauthoriz
Agents who own the policies they sell and can work for multiple insurers are known as:
independent agents
A foreign insurer is:
An insurance company conducting business in a state in which it wasn't incorporated
Which of the following terms means the ways insurance products are marketed and sold to the public?
Distribution system
Who is responsible for the dissemination and content of insurance advertisements?
The insurer
Angela took out a $2,000 policy loan from her whole life insurance policy. The policy face amount is $200,000. If Angela does not repay the loan, how will the death benefit be affected?
The death benefit will be decreased by $2,000 plus interest.
The nonguaranteed elements of an insurance policy are:
illistrations
All of the following are true regarding claims for life insurance policies, EXCEPT:
The only claim in a life insurance policy is the insured's death.
Upon the insured's death, the policy proceeds are paid to the beneficiary.
Life insurance claims are typically paid within a few days of the insured's death, but the insurer may have up to
There are three types of private insurers. Which of the following is a true statement about the different insurers?
An insurer that conducts business in countries that it was not incorporated in is an alien insurer.
A life insurance policy summary includes all of the following, EXCEPT:
The insurance agent's name
Policy premium amounts
Policy loan interest rates
* Policy illustrations
Agents are appointed to work on behalf of:
Insurance companies
A domestic insurer is:
An insurance company conducting business in the state in which it is incorporated.
For replacement transactions, an insurance producer's duties include all of the following, EXCEPT:
Provide the applicant with a policy cost comparison statement
Make a list of all existing policies the applicant intends to replace
Leave a notice regarding replacement with the applicant
* Notify existing insurers of policies to be replaced
Life insurance policy illustrations must contain all of the following, EXCEPT:
Agent's name
Generic name of policy
Insured's age and sex
* Only the guaranteed policy elements
Each member insured under a group life insurance policy receives a(n):
Certificate of insurance
Net single premium is
the amount an applicant would pay if he were to only pay one premium on the policy.
*Net single premium = mortality - interest
Gross annual premium
the actual amount of annual premium payments. The gross annual premium is the net annual level premium with expenses.
*Gross single premium = net single premium + expenses
A person with this risk classification will have a discounted premium from the rates provided in the C.S.O. tables.
Preferred
Which of the following is not used to calculate the premium for life insurance contracts?
Morbidity is not used but loading, interest, and mortality are.
Level premium life insurance policies usually have ______ premiums in order to account for the greater risk of death with advancing age.
Higher
In life insurance the risk of death increases with age, so premiums must be ______ in ______ years to account for this risk.
Higher; later
Which of the following best describes the tool underwriters use to determine the rate at which a group of people die?
Mortality table
Employer-paid premiums used to fund group life insurance for the benefit of employees are:
tax deductible as a business expense
Another term for insurers' expense is:
loading
To determine the premium rate for health insurance policies, all of the following are used, EXCEPT:
Interest earnings
Loading
Morbidity
* Mortality
Martin pays his policy premiums on a monthly basis. Which of the following terms best describes the frequency that Martin pays his premiums?
Premium payment mode
Generally, premiums paid on business life insurance policies are:
not tax-deductible
Which of the following are the actuarial tables used by insurers for underwriting?
C.S.O. tables
Insurers' expenses include all of the following costs, EXCEPT:
Overhead
Acquisition costs
Immediate claims payments
* Premiums
Premiums are invested to earn interest. __________ interest rates allow insurers to charge ________ premiums.
higher; lower
All of the following statements are true regarding the premium payment mode, EXCEPT:
If premiums are paid more frequently, the insurer incurs an additional loading expense.
Insurers accept premium payments annually, semi-annually, quarterly, monthly and weekly. Some insurers may accept a single lump-sum premium payment. This applies to li
Insurance companies need to set aside a certain amount of funds called reserves. Reserves are treated as a(n):
Liability
Which factor is the most crucial for underwriting life insurance?
Proposed insured's age