BUSI 421 - Final Exam

Assuming appropriate regulations and requirements are followed, which of the following correctly identify tax issues related to ESPPs? (1) gain on the sale of stock is taxed as a capital gain (2) there is no taxation to the employee until the stock is sold (3) the employee is taxed when the ESPP option is granted (4) the employee will be taxed when the ESPP option is exercised a. (1) and (2) only b. (2) and (3) only c. (3) and (4) only d. (1) (3) and (4) only

a. (1) and (2) only

Which of the following is the policy holder with the highest-risk tolerance? a. A homeowner who has a $2,000 deductible on a house worth $150,000 b. A homeowner who has a $750 deductible on a house worth $150,000 c. A car owner who has a $50 deductible on a car worth $75,000 d. A renter who has a $100 deductible on a personal property worth $100,000

a. A homeowner who has a $2,000 deductible on a house worth $150,000

Sales commission are included when calculating a policy's: a. Expenses b. Loading c. Dividends d. Death benefits

a. Expenses

Most individuals can meet their liability insurance needs through: a. Homeowners and personal auto policies b. Individual liability coverage c. Personal umbrella policies d. Pre-paid legal services contracts

a. Homeowners and personal auto policies

The primary method of off-balance sheet risk financing is: a. Insurance b. Self-insurance c. Passive retention d. Active loss retention e. Risk control

a. Insurance

When using the needs analysis approach for estimating a family's life insurance requirements, the two broad categories of needs that should be considered are: a. Lump sum and multi-period income b. Short-term and long-term c. Individual and family d. Personal and professional

a. Lump sum and multi-period income

All of the following are true EXCEPT: a. Mutual insurance companies issue stock and are organized as for-profit corporations b. Mutual insurance companies are owned by policy-holders and profits are disbursed in dividends c. Mutual insurance companies have a harder time raising capital than other insurance companies d. Mutual insurance companies are permitted to merge with other companies to form a larger company

a. Mutual insurance companies issue stock and are organized as for-profit corporations

Which of the following is NOT considered as an intangible asset? a. Work-in-process b. Goodwill c. Relationships with vendors d. Public infrastructure e. The firm's reputation

a. Work-in-process

High-deductible health insurance is required with which of the following? a. a Health Savings Account b. a Health Reimbursement Arrangement c. flexible spending account d. a and b e. a and c

a. a Health Savings Account

Reinsurance is defined as: a. a concept in which an insurer places some of the risks it has agreed to insure with other insurers b. a concept in which an insured can insure property with more than one insurer at the same time c. a concept in which an insurer can reinstate a terminated policy within a certain time period at the insured's request d. a concept in which an insured can increase the amount of insurance on an item as it appreciates

a. a concept in which an insurer places some of the risks it has agreed to insure with other insurers

When considering annuities as an investment vehicle, planner should note that they are: a. affected by current and expected future interest rates. b. automatically protected against inflation c. ill-suited for providing an immediate income stream d. designed primarily for investors with a high risk tolerance

a. affected by current and expected future interest rates.

When estimating the value of a key employee, all of the following are important factors EXCEPT: a. an estimate of what the employee could make at a competitor's business b. the expected total compensation of the key employee over the transition period c. total costs of obtaining an equivalent replacement d. an estimate of the percentage of gross revenues attributable to the key employee

a. an estimate of what the employee could make at a competitor's business

Coinsurance requires that: a. both the policyholder and the insurer pay part of each covered expense after the deductible has been met b. both the policyholder and the insurer pay part of the retention limit of the policy c. both the policyholder and a co-signer on the policy pay part of each covered expense up to an amount equal to the deductble d. both the policyholder and a co-signer on the policy guarantee to pay on-half of each covered expense after the deductible has been met each

a. both the policyholder and the insurer pay part of each covered expense after the deductible has been met

How are severance payments usually considered by the IRS when they are made pursuant to a written agreement that is entered into while the employee is still actively at work? a. compensation for employee services b. a gift c. a dividend d. a buy out payment for the employee's interest in the business

a. compensation for employee services

Physical damage coverage pays for: a. direct and accidental loss to covered and nonowned autos b. direct and accidental loss of auto equipment only c. direct and accidental damage caused by reasons other than collision d. direct and accidental damage caused exclusively by weather and civil commotion

a. direct and accidental loss to covered and nonowned autos

Disadvantages of an HMO include a. except for certain emergencies, HMO subscribers must receive care from physicians who are part of the HMO b. an HMO is more costly if employees are relatively young c. HMOs offer fewer health care services than traditional health insurance d. a and b e. b and c

a. except for certain emergencies, HMO subscribers must receive care from physicians who are part of the HMO

Incentive stock options are used mostly by a. large C corporations with public stock b. S corporations c. closely held businesses d. only a and b e. only b and c

a. large C corporations with public stock

An amount characterized as an excess parachute payment is subject to which of the following tax sanctions? a. no employer deductions are allowed b. the person receiving the payment is subject to a penalty tax equal to 10% of the excess parachute payment c. the employer must pay a penalty tax equal to 20% of the excess parachute payment d. a and b e. a and c

a. no employer deductions are allowed

Total disability is based on: a. one's own occupation b. any occupation for which the insured may be reasonably suited c. the occupation that is stated in the policy d. SSDI occupational categories

a. one's own occupation

The two major types of health insurance plans are: a. prepaid and postpaid b. PPO and HMO c. individual and mutual d. low-deductible and high-deductible

a. prepaid and postpaid

Which of the following is not a managed health care tool or technique? a. reimbursement for out-of-pocket costs b. negotiated discounts with health care service providers c. quality review d. cost sharing with employees e. lifestyle management

a. reimbursement for out-of-pocket costs

An exclusive insurance agent is one who: a. represents a single insurance company b. represents a limited number of insurance companies in a single state c. is an employee of an insurance company d. handles insurance business over the telephone or internet only

a. represents a single insurance company

The dwelling must be: a. shown in the declarations b. where the insured maintains his or her legal residence for tax purposes c. occupied only by the insured and members of his or her family d. subject to inspection and approval by any applicable local housing authority

a. shown in the declarations

Short-term disability insurance is generally: a. sold as an employer-sponsored group plan b. sold in individual policies c. purchased by high-net-worth individuals d. mandated by states as part of a comprehensive medical coverage

a. sold as an employer-sponsored group plan

Guaranty funds that protect consumers in the event of an insolvent insurer operate primarily at the ____________ level. a. state b. regional c. federal d. international

a. state

The primary regulatory body for handling consumer complaints about insurers is: a. state insurance departments b. the NAIC c. the Federal Insurance Office d. the SEC

a. state insurance departments

Insurance companies base their mortality assumptions on: a. the experience of large groups of people b. published mortality results of other large life insurance companies c. federally mandated mortality tables published by the Treasury Department d. the individual assumptions made by actuaries employed by the company

a. the experience of large groups of people

Medical payments coverage is defined as: a. the insurer promising to pay expenses for medical or funeral services because of an accident sustained by the insured b. the insurer promising to pay expenses for medical or funeral services because of an accident caused by the insured c. the insurer promising to pay expenses for medical services necessary for the safe operation of a vehicle by the insured d. the insurer promising to pay for medical services for persons injured only while occupying a vehicle operated by the insured

a. the insurer promising to pay expenses for medical or funeral services because of an accident sustained by the insured

Liability insurance states that: a. the insurer will pay damages for injury or property damage caused by the insured b. the insurer will pay damages for injury or property damage caused by a third party to the insured c. the insurer will hold the insured liable for damages caused by the insured but will pay for medical costs for the insured d. the insurer will pay damages for property damage but not injury caused by the insured

a. the insurer will pay damages for injury or property damage caused by the insured

Negligence per se means that: a. the standard of care that is due is expressed in a law or statute b. a. the standard of care that is due is so obvious that anyone would have known the right thing to do in a particular situation c. a. the standard of care due is unclear d. the person is negligent because they had been in a similar situation in the past and therefore should have known what to do

a. the standard of care that is due is expressed in a law or statute

At what point does an employer normally receive a tax deduction for a restricted stock plan? a. the year in which the property becomes substantially vested b. two years following a Section 83(b) election c. when the employee purchases stock under the plan d. when the employee sells stock purchased under the plan

a. the year in which the property becomes substantially vested

The primary reason for a business to offer group insurance is: a. to give its employees benefits b. to keep absenteeism from illness low c. to entice employees to get regular check-ups d. to invest in its employees

a. to give its employees benefits

All of the following are ways to classify annuities EXCEPT: a. whether the annuity is qualified or nonqualified b. How the annuity is purchased c. when the annuity payments begin d. How the cash value of the annuity is invested

a. whether the annuity is qualified or nonqualified

An individual owns a life insurance policy with an investment in the contract of $75,000 and a cash value of $125,000. Over time, the individual withdraws $85,000 from the contract. How much of the withdrawal will the individual be required to recognize for income-tax purposes. a. $0 b. $10,000 c. $50,000 d. $85,000

b. $10,000

How long must stock acquired by an employee under the ISO be held to satisfy section 422 regulations? (1) at least two years after the option grant (2) one year from the date stock is transferred to the employee (3) until the fifth year of employment (4) one year after the option grant a. (1) only b. (1) and (2) only c. (1) (2) and (3) only d. (2) (3) and (4) only

b. (1) and (2) only

The two major sources of loss exposures to identify are: a. Owned assets and non-owned assets b. Assets and liabilities c. Human resources and net income d. Perils and hazards e. Financial and physical assets

b. Assets and liabilities

If an insured is found to be liable for an amount that exceeds the limit of the applicable insurance policies, the amount in excess of the limit: a. Will not be paid b. Becomes the personal responsibility of the insured to pay c. Is paid by the claimant's insurance company d. Cannot be discharged in bankruptcy

b. Becomes the personal responsibility of the insured to pay

In the event of an insurance company insolvency, policyholders are protected by: a. Reinsurance b. State guaranty funds c. Other insurers d. The federal government e. None of the above

b. State guaranty funds

Which of the following types of insurance agents are least likely to be needed by an individual? a. Independent b. Surplus lines brokers c. Exclusive d. Direct writing e. Nonadmitted

b. Surplus lines brokers

Which of the following items are included in a life insurance contract's investment in the contract? a. Interest paid on policy loans b. The economic benefit reportable income from term insurance in a qualified plan c. Premiums for accidental death benefits d. Premiums for disability income

b. The economic benefit reportable income from term insurance in a qualified plan

"Named perils" are: a. a list of perils for which coverage is not provided b. a list of perils for which coverage is provided c. a list of perils for which reduced coverage is provided d. a list of perils for which coverage is provided only through the purchase of a rider

b. a list of perils for which coverage is provided

Which of the following vehicles does not qualify for automobile insurance? a. A pickup truck b. a motorcycle c. a vintage car d. a minivan

b. a motorcycle

Underwriting is defined as: a. a concept in which a number of companies pool resources to assume a percentage of risks on a given policy b. a process in which an insurance company analyzes the exposure to risk and designs and prices an insurance program c. the process in which the terms of a treaty are negotiated and the contract is written, including pricing and exclusions d. a concept in which reinsurers accept only specific policies for coverage

b. a process in which an insurance company analyzes the exposure to risk and designs and prices an insurance program

Which of the following is not a standard provision in a typical life insurance policy? a. a provision explaining the insured's right to assign the policy b. a provision permitting the insurer to cancel the policy at any time if the insured individual changes jobs c. a provision describing alternative settlement options that may be elected for payment of death proceeds d. a provision explaining the policyowner's right to borrow cash values

b. a provision permitting the insurer to cancel the policy at any time if the insured individual changes jobs

The term "nonowned auto" includes a. an abandoned automobile b. an automobile not owned by the insured but being used by the insured c. an automobile loaned by the insured to a family member d. an automobile in the process of being sold

b. an automobile not owned by the insured but being used by the insured

An independent insurance agent is defined as: a. a licensed employee of an insurer b. an independent businessperson who represents the insurer c. an independent businessperson who represents only one insurer d. an agent that works for the insured

b. an independent businessperson who represents the insurer

An HMO is best defined as: a. an organization of health care providers that contracts with a sponsor or insurer to treat policyholders b. an organization of health care providers that provide care on a prepaid basis c. an organization of health care providers that provides care on a postpaid basis d. an organization of health care providers that works through a specific hospital to provide care on a postpaid basis

b. an organization of health care providers that provide care on a prepaid basis

Which of the following is not true regarding Health Reimbursement Arrangements? a. the employer may deduct 100% of the cost of benefits paid to employees b. employees are eligible to participate in the plan after 2 years of service c. the plan can be fully funded and administered by the employer d. the plan can cover the expense of a swimming pool if prescribed by a physician for treatment of a medical condition e. employees under the age of 25 can be excluded from the plan

b. employees are eligible to participate in the plan after 2 years of service

Which one of the following weakens the value of an ESPP as a performance incentive? a. the employee is taxed when the stock is sold b. fluctuation in the market value of the stock is likely to have little or no relation to employee performance c. the ESPP is a form of equity compensation d. all covered employees must have the same rights and benefits

b. fluctuation in the market value of the stock is likely to have little or no relation to employee performance

To be eligible for a small business health plan tax credit, a business must a. employ members of the owner's family b. have fewer than 25 full-time workers c. have an average wage less than $30,000 d. not have any creditors e. all of the above

b. have fewer than 25 full-time workers

An employee stock purchase plan is a tax-advantaged form of employee compensation that is most effectively used in a a. family corporation b. large corporation with publicly traded stock c. closely held corporation d. all of the above e. only a and c

b. large corporation with publicly traded stock

Which of the following benefits are not allowed in a flexible spending account? a. dental care b. long-term care c. dependent care reimbursement d. purchase of eyeglasses e. purchase of hearing aids

b. long-term care

The legal presumption that the beneficiary died first in the Uniform Simultaneous Death Act (USDA): a. has been adopted into federal law b. may be changed by the terms of a life insurance policy c. may not be changed by the terms of a life insurance policy if the USDA or a similar act applies to the policy d. is not recognized by the IRS

b. may be changed by the terms of a life insurance policy

Disability benefits: a. must be spent on qualified medical expenses first b. may be spent in whatever way the beneficiary sees fit c. are taxed as ordinary income d. are taxed as capital gains

b. may be spent in whatever way the beneficiary sees fit

With regard to tax liability, disability payments: a. are exempt from FICA and FUTA taxes b. may count as in taxable income depending on how the policy was paid for. c. tax-free up to certain amounts for disability payments from policies that were purchased by the employee directly d. considered capital gains

b. may count as in taxable income depending on how the policy was paid for.

All of the following are primary life insurance planning areas, except: a. income replacement and family needs b. portfolio value and allocation of assets between debt and equity instruments c. business insurance needs analysis d. estate preservation and liquidity needs

b. portfolio value and allocation of assets between debt and equity instruments

An owner of an insurance policy on the life of another person dies. What is includible in the deceased owner's estate? a. the face value of the life insurance policy b. replacement cost of the life insurance policy c. the sum of premiums paid d. nothing is includible

b. replacement cost of the life insurance policy

The large pools of funds that insurers must maintain to pay claims are known as: a. actuarial funds b. reserves c. reinsurance d. premiums

b. reserves

All of the following planning goals can be achieved using annuities EXCEPT: a. a known income stream b. tax-free growth of the premiums invested c. a guaranteed rate of return d. a guaranteed payment in the event of death

b. tax-free growth of the premiums invested

A deductible is defined as: a. the amount the insured pays each month for the policy b. the amount for which the insured is responsible on any property loss c. the amount for which the insurer promises to replace damaged goods d. the amount the insured pays to add new items onto an existing policy

b. the amount for which the insured is responsible on any property loss

Premiums paid for employees' health insurance are deductible by the employer if: a. the premiums make up 7.5% of the business' adjusted gross income b. the benefits are payable to the employees or their beneficiaries, rather than the employer c. the benefits are payable to the employer, rather than to the employees or their beneficiaries d. the premiums cost more than 20% of the plan

b. the benefits are payable to the employees or their beneficiaries, rather than the employer

The "residence premises" includes: a. any structure that is situated on land owned by the insured b. the dwelling itself and any attached structures c. the dwelling and any outbuildings which are suitable for occupancy d. all of the above

b. the dwelling itself and any attached structures

Underinsurance coverage covers: a. the gap between the injured party's uninsured policy and the value of his automobile b. the gap between the injured party's uninsured policy and the liable driver's injury limit c. the gap between the injured party's uninsured policy and his medical benefits d. the gap between the injured party's uninsured policy and the amount the liable driver can pay out-of-pocket based on a court decision

b. the gap between the injured party's uninsured policy and the liable driver's injury limit

Third-party coverage is: a. when a homeowner insures a house and its contents b. when a business or individual insures themselves against injuring other people or causing damage c. when a business insures itself against flood and fire damage d. when a business or individual insures company-owned vehicles used by multiple employees

b. when a business or individual insures themselves against injuring other people or causing damage

In the absence of any additional agreement, when is the employee usually taxed on stock options? a. when the option is issued b. when the option is exercised c. when the underlying stock reaches a target price d. when the underlying stock splits

b. when the option is exercised

Which of the following items normally would be included in an employee census? (1) list of all current employees (2) compensation levels (3) employment status (4) financial information about the employer a. (1) only b. (1) and (2) only c. (1), (2), and (3) only d. (2), (3), and (4) only

c. (1), (2), and (3) only

Which of the following options are reasons why employees may need employer-sponsored benefit plans? (1) health care costs can be expensive (2) retirement saving is difficult (3) families need financial protection in the event of an employee's death (4) employees might otherwise have more money than they need a. (1) only b. (1) and (2) only c. (1), (2), and (3) only d. (2), (3), and (4) only

c. (1), (2), and (3) only

The term risk is best described as: a. A certainty that an adverse outcome will occur b. An event that is insurable c. A variation from the expected outcome d. A fortuitous outcome e. An event that can only have a negative outcome

c. A variation from the expected outcome

In a current assumption policy, if the insurer has a more favorable experience than anticipated, that experience is reflected in the policy's: a. Dividends b. Expenses c. Cash Value d. Loading

c. Cash value

All of the following are advantages of life insurance except: a. Guaranteed payout b. Proceeds not probated c. Cost of coverage reduces disposable income d. Generally not subject to federal income tax

c. Cost of coverage reduces disposable income

Grace is the CEO of a fairly large mutual insurance company. Her long term goals include growing the company by fifty percent. Recently she has been reading about the benefits of demutualization. Which of the following is true regarding demutualization as it applies to Grace's goal? a. A demutualization is a type of merger that will increase the number of policyholders b. Grace knows that although she does not need permission from the insurance regulators to demutualize, she will need approval from the policyholders c. Demutualization will enable Grace's company to sell stock to raise capital d. While she may now sell shares of stock in the company, when it is demutualized she will no longer have to pay policyholder dividends e. Grace's mutual insurer has no equity under its current legal structure and cannot sell stock to obtain addition paid in capital

c. Demutualization will enable Grace's company to sell stock to raise capital

Designation of an insurance company as a "systematically important financial institution" mean that in the event of insolvency the ______ would act as a receiver. a. NAIC b. FDIC c. FIO d. FSOC

c. FIO

If an annuity has a guaranteed contract value and a payout phase that begins more than one year after the premium is paid, it is a: a. Variable deferred annuity b. Fixed immediate annuity c. Fixed deferred annuity d. Longevity annuity

c. Fixed deferred annuity

Which of the following is not one of the four types of insurance companies: a. Stock insurance companies b. Mutual insurance companies c. Internet insurance companies d. Reciprocal exchanges e. Lloyd's associations

c. Internet insurance companies

A conceptually sound approach to valuing key employees should: a. Ignore the financial consequences of the timing of lost employee contributions b. Discount for trends in employee contributions c. Recognize that most, if not all, the value of key employee contributions will be recovered over time through change or adapting d. Set their value equal to how much the employer would have to spend in recruiting and training costs to obtain an equivalent employee

c. Recognize that most, if not all, the value of key employee contributions will be recovered over time through change or adapting

Under the Affordable Care Act, levels of coverage offered in various plans are described in what manner? a. Bronze/Silver/Gold/Platinum and catastrophic b. Tiers 1-4 c. Single, Married Couple, and Family d. In any way the insurer would like, so long as the benefits are clearly defined in the policy and comply with federal requirements

c. Single, Married Couple, and Family

The driver of a truck owned by ABC Corporation backs the truck into the front of Mrs. Smith's new car. There is no damage to the truck or to any people, but the new car is totaled. This is considered an example of: a. First-party risk b. Second-party risk c. Third-party risk d. Non-owned auto risk e. Bailee's risk

c. Third-party risk

An example of first-party coverage is: a. a business insuring itself against selling a faulty light socket b. a corporation insuring itself against lawsuits from disgruntled customers c. a homeowner insuring a house and its contents d. a homeowner insuring himself against accidental death

c. a homeowner insuring a house and its contents

The "multiples-of-salary" method of estimating the amount of a family's insurance needs is a. a rule of thumb method that determines insurance need by looking at the number of children in the family b. a method that was repealed by the Taxpayer Relief Act of 1997 c. a method combining a simple rule of thumb method with elements of income replacement and needs analysis d. a method that can be used only by individuals who are properly licensed with the FAA

c. a method combining a simple rule of thumb method with elements of income replacement and needs analysis

Motorcycles, ATVs, and other motorized vehicles should be covered by: a. a homeowner's policy b. an automobile policy c. a recreational vehicle policy d. a single-user policy

c. a recreational vehicle policy

A PPO is: a. an organization of health care providers that affiliates with a particular hospital system to provide postpaid care for policyholders b. an organization of health care providers that provide care on a prepaid basis c. an organization of health care providers that contracts with a sponsor or insurer to provide care for policyholders d. an organization of health care providers that contracts with local sponsors only to offer prepaid care to policyholders

c. an organization of health care providers that contracts with a sponsor or insurer to provide care for policyholders

Advantages of a cafeteria plan include a. cafeteria plans are relatively simple to design and administer b. cafeteria plans typically provide medical and life benefits c. cafeteria plans can be structured to meet a variety of employee benefit needs d. all of the above e. only a and c

c. cafeteria plans can be structured to meet a variety of employee benefit needs

Medicare supplemental insurance: a. is a program designed to replace Medigap coverage b. covers long-term care for up to 100 days only c. covers medical expenses not covered by Medicare d. is a program for individuals age 55 and older

c. covers medical expenses not covered by Medicare

Employees covered by an employer-sponsored health plan: a. must pay taxes on the value of their insurance on a sliding scale b. do not have to pay taxes on the value of their insurance once they are retired c. do not have to pay taxes on the value of their insurance d. usually have their taxes on the value of their insurance taken out of each paycheck

c. do not have to pay taxes on the value of their insurance

Disadvantages of a flexible spending account include all of the following except a. a flexible spending account must meet complex nondiscrimination requirements b. benefit elections are generally fixed for the entire plan year c. employer must contribute to employee flexible spending accounts d. flexible spending accounts must be used within a calendar year or forfeited e. administration of a flexible spending account plan is relatively more expensive for an employer than a standard benefit package

c. employer must contribute to employee flexible spending accounts

What is the minimum allowable exercise price of the option? a. fair market value of the stock on date of exercise, less 25% b. option price plus 25% of the current market price c. fair market value of the stock on the date the option is granted d. one-half the current fair market value of the stock

c. fair market value of the stock on the date the option is granted

The most common type of prepaid plan is a: a. a preferred provider organization or PPO b. a health provider network or HPN c. health maintenance organization or HMO d. a recommended provider system or RPS

c. health maintenance organization or HMO

Some health economists argue that offering an HSA as an alternative to traditional health insurance will eventually increase premiums for traditional health insurance because a. older employees will tend to use the HSA b. employees that are younger and healthier will want to have the coverage under a traditional plan c. health, high income employees will select the HSA, leaving relatively sicker and older employees in the traditional health plan d. premiums of the traditional plan will go up with inflation, but HSA costs are fixed by long-term contract e. distributions from an HSA are included in employee income and taxed, while the proceeds from traditional insurance is not, increasing demand for traditional health coverage

c. health, high income employees will select the HSA, leaving relatively sicker and older employees in the traditional health plan

Vehicle Telematics systems provide the insurer with information about: a. the vehicle's maintenance history b. the road and weather conditions in which the vehicle is operated c. how a vehicle is driven by its operator(s). d. Who is at fault if a collision occurs

c. how a vehicle is driven by its operator(s).

Uninsured motorist coverage is defined as: a. insurance covering damages caused when the insured injures an uninsured driver b. insurance for those who do not own cars but have occasion to drive in some circumstances c. insurance covering damages incurred on the insured by an uninsured driver d. insurance covering physical damage to a vehicle only, but not the driver of the vehicle

c. insurance covering damages incurred on the insured by an uninsured driver

The three principle factors in premium calculations are: a. agent commissions, mortality, and expense ratios b. agent commissions, interest rates, and lapse rates c. interest rates, agent commissions, and mortality d. interest rates, morbidity, and company dividends

c. interest rates, agent commissions, and mortality

Which of the following is seen as a primary advantage to bonus compensation? a. tax benefits are greater b. it does not have to meet the requirement of reasonableness for employer deductibility c. it allows flexibility to reflect company performance d. tax deferral is often an added benefit

c. it allows flexibility to reflect company performance

The NAIC creates: a. model marketing materials for insurers b. technical material designed to be used in insurance-related litigation c. model regulations that can be adopted by state insurance regulators d. cutting-edge actuarial models

c. model regulations that can be adopted by state insurance regulators

Insurance is primarily regulated: a. by federal statute b. by federal administrative regulations c. on a state-by-state basis d. by the marketplace e. both a and b are correct

c. on a state-by-state basis

Health insurance is best defined as: a. protection against the costs of preventive medical care for pre-determined health risks b. protection against the loss of income due to disability c. protection against medical and doctor's bills in the event of a serious illness or injury d. protection against the cost of daily care needed for long periods of time

c. protection against medical and doctor's bills in the event of a serious illness or injury

To find out the strength of an insurance company's rating, you should: a. follow the stock prices of a company b. rank the company by employee size c. research the company through a rating agency d. rate the company based on past growth

c. research the company through a rating agency

An intentional tort is when: a. someone intends for a specific result to occur, and that result does occur b. someone commits harmful act that they have been planning for a long time c. someone tries to harm another person on purpose d. a harmful act that causes a significant amount of damage or injury

c. someone tries to harm another person on purpose

Insurance companies are regulated by: a. the federal government b. an industry oversight group c. state insurance departments d. an industry watchdog organization

c. state insurance departments

What is one of the primary considerations specifically related to constructive receipt of severance benefits in a funded plan? a. there is no danger of being considered an ERISA pension plan b. Social Security c. substantial risk of forfeiture d. reasonableness test does not apply

c. substantial risk of forfeiture

The two basic types of reinsurance are: a. treaty reinsurance and collective reinsurance b. facultative reinsurance and stabilized-fund reinsurance c. treaty reinsurance and facultative reinsurance d. collective reinsurance and stabilized-fund reinsurance

c. treaty reinsurance and facultative reinsurance

Personal injury protection is also known as: a. "first dollar" automobile insurance b. "occupying passenger" automobile insurance c. "comprehensive" automobile insurance d. "no-fault" automobile insurance

d. "no-fault" automobile insurance

What tax rules apply when an option does have a readily ascertainable fair market value at the time of the grant? (1) the option is taxed based on the difference between the stock price and the option's value at the time of the grant (2) the option is taxed at the time of the grant (3) the employer receives a tax deduction at the time of the grant (4) the employee has no further taxable compensation income when the option is exercised a. (1) and (3) only b. (1), (2), and (3) only c. (2), (3), and (4) only d. (1), (2), (3), and (4)

d. (1), (2), (3), and (4)

Which of the following options are good questions to ask about existing benefit plans? (1) Who is covered? (2) What benefits are provided? (3) How is the plan funded? (4) Who administers the plan? a. (1) and (3) only b. (1), (2), and (3) only c. (2), (3), and (4) only d. (1), (2), (3), and (4)

d. (1), (2), (3), and (4)

What benefit is gained by offering an ISO? (1) there may be AMT when an ISO is exercised (2) the ISO provides greater tax deferral than a nonstatutory option (3) income from sale of stock received at exercise may be eligible for preferential capital gain treatment (4) the company has little or no out-of-pocket cost with an ISO a. (1) only b. (1) and (2) only c. (1) (2) and (3) only d. (2) (3) and (4) only

d. (2) (3) and (4) only

Generally, sick pay or short-term disability payments do not extend beyond about ____ months a. 2 b. 3 c. 4 d. 6 e. 9

d. 6

The first and most important part of a policy is the: a. exclusions page b. conditions page c. endorsements page d. Declarations page

d. Declarations page

Which of the following is true regarding HSA funding? a. IRS permission is needed to establish the fund b. amounts not used for qualified medical expenses during a calendar year are forfeited c. there is a cap on asset accumulation in an HSA d. HSA funding is not subject to income tax e. HSA funds can be withdrawn only if used for qualified medical expenses

d. HSA funding is not subject to income tax

All of the following are advantages of having insurance EXCEPT: a. Insurance allows an individual or business to have the opportunity to spend a little up front in order to receive a large payout for potential future damages or losses b. Insurance may be used to meet certain regulations or guidelines for business owners c. Insurance may be used to meet contractual requirements in business dealings d. Insurance protects individuals and businesses from frivolous lawsuits in the event that their actions lead to a person's injury or loss

d. Insurance protects individuals and businesses from frivolous lawsuits in the event that their actions lead to a person's injury or loss

Sam is a small business owner, and has $3 million personal liability policy. This means that: a. Sam's liability can never exceed $3 million b. Sam can borrow up to $3 million against the value of the policy c. Sam's business is worth $3 million d. Sam is covered for liability claims up to $3 million, but may be required to pay for any liability in excess of that amount.

d. Sam is covered for liability claims up to $3 million, but may be required to pay for any liability in excess of that amount.

Insurance companies use premiums in which of the following ways? a. They use the premiums to offset daily business expenses b. They invest the premiums in interest-bearing accounts and use the accumulated interest to pay claims c. They maintain the premiums in non-interest-bearing accounts d. They invest the premiums until claims must be paid

d. They invest the premiums until claims must be paid

Jack is driving his car when Tom runs a red light and hits Jack. Both men have liability insurance. Whose insurance covers the cost of Jack's car repairs and medical bills, and why? a. Jack's insurance pays for it all, because he is insured b. Tom's insurance pays for the car repairs, but not the medical bills, because he is liable only for the damage to Jack's personal property c. Jack's insurance covers his repair bills, but not his medical bills, because he does not have medical insurance d. Tom's insurance covers it all, because liability insurance means that both injury and damage are covered

d. Tom's insurance covers it all, because liability insurance means that both injury and damage are covered

A reciprocal exchange is: a. A corporation where the stockholders are also the policyholders b. A location in London, or other large cities, where insurance companies share risks c. A type of mutual insurance company that specializes in liability coverages d. Usually managed by an attorney-in-fact e. Usually managed by a senior underwriter

d. Usually managed by an attorney-in-fact

A flexible spending plan is beneficial when a. employees need benefits that are difficult to provide on a group basis b. employees have coinsurance and deductibles to meet for health insurance c. employer wants to provide relatively more benefits to highly compensated employees d. a and b e. a and c

d. a and b

A "proof of loss" form must include all of the following EXCEPT: a. changes in the title or occupancy that occurred during the policy period b. identification of any other insurance which may be available to cover the loss c. a list of liens that have been applied to the property d. a copy of the deed for the property

d. a copy of the deed for the property

The risk of partial disability is typically addressed through the use of: a. a separate policy b. life insurance c. a qualified retirement plan d. a rider

d. a rider

A company may decide to use a bonus in addition to regular compensation for all of the following reasons, except a. it enables shareholder-employees to withdraw the maximum compensation income from the company each year. b. it acts as an incentive-oriented form of compensation for executives of larger companies, based on the attainment c. it may be used to assist executives in funding cross-purchase buy-sell agreements d. all of the above e. a and b only

d. all of the above

Advantages of a restricted stock plan include which of the following? a. employee can defer taxation until the year restricted stock becomes substantially vested b. employer can give an executive equity interest in the company but withdraw it if certain conditions are not met c. executive has all advantages of stock ownership, but is able to defer taxation d. all of the above e. only a and c

d. all of the above

Advantages of an incentive stock option (ISO) include which of the following? a. ISOs do not require much, if any, outlay of cash b. income from the sale of stock obtained through exercise of an ISO may be eligible for capital gain treatment c. ISOs generate greater deferral of taxes to an executive than nonstatutory stock options d. all of the above e. only a and b

d. all of the above

An employer can use a restricted stock plan to a. create a performance incentive for an executive b. discourage employees from setting up a rival business c. retain employees d. all of the above e. only a and c

d. all of the above

Common exclusions in a long-term disability policy include which of the following? a. disability during a time the employee is not under a physician's care b. disability caused by a self-inflicted injury c. disability beginning before the employee is eligible for plan coverage d. all of the above e. only a and b

d. all of the above

Disadvantages of a stock option include which of the following? a. employee bears market risk b. market fluctuation may have little relationship with employee performance c. employee must have a source of funds to purchase stock d. all of the above e. only a and b

d. all of the above

Disadvantages of an employee stock purchase plan include a. the employee bears the market risk b. the employee must have a source of funds to purchase the stock c. the employer usually does not receive a tax deduction under an employee stock purchase plan d. all of the above e. only a and b

d. all of the above

In health insurance plan design, which of the following are vitally important aspects of that design? a. efficient delivery of benefits b. meeting employer's cost constraints c. having employees see the plan in a positive light d. all of the above e. only a and b

d. all of the above

In lieu of a bonus, an employer can provide a tax-deferred benefit to employees by using a. a medical benefit plan b. an incentive stock option plan c. a nonqualified deferred compensation plan d. all of the above e. only b and c

d. all of the above

Life insurance proceeds would be considered payable for the benefit of a decedent's estate if used to pay for which of the following? a. state inheritance taxes b. medical bills owed by the decedent's estate c. income taxes owed by decedent's estate d. all of the above

d. all of the above

Reasonable compensation is determined by reference to which of the following? a. executive's historic compensation b. amounts paid by the employer to executives performing comparable services c. amounts paid by comparable employers to executives performing comparable services d. all of the above e. only b and c

d. all of the above

Which of the following can an employer choose when designing a short-term disability or sick pay policy? a. who is covered b. level of benefits c. terms and conditions of coverage d. all of the above e. only b and c

d. all of the above

Which of the following is true regarding health care costs? a. health care costs have risen faster than the rate of inflation b. employers face increasing cost pressures relative to health care costs c. traditional health care plans allow employers fewer methods of cost control than managed health care d. all of the above e. only a and b

d. all of the above

Which of the following is true regarding restricted stock plans? a. restricted stock plans can be designed as incentive plans, similar to bonus plans b. restricted stock plans should be used only when the employer is willing to create new shareholders of the company c. restricted stock plans may include a provision that the employee cannot re-sell the stock without first offering it back to the company d. all of the above e. only a and b

d. all of the above

A gift of life insurance to an irrevocable life insurance trust can make all of the following results possible, EXCEPT: a. state death taxes savings b. federal estate tax savings c. estate liquidity d. continued control and ownership of the life insurance policy

d. continued control and ownership of the life insurance policy

Benefits paid from personal health insurance are: a. taxed at a flat rate of 17.5% b. taxed based on the individual's annual gross adjusted income c. taxed at 7.5% d. exempt from income tax

d. exempt from income tax

Under the Affordable Care Act, all of the following are considered essential benefits, except a. preventive and wellness services b. emergency care services c. prescription drugs d. hearing care services and devices e. mental health and substance abuse disorder services

d. hearing care services and devices

Liability and physical damage coverage for watercraft is provided by: a. a homeowner's policy b. an automobile policy c. a recreational vehicle policy d. it depends on the type of watercraft

d. it depends on the type of watercraft

Employee agents are: a. licensed as insurance agents and paid on commission b. permitted to conduct business over the telephone and internet only and paid a salary c. permitted to work for multiple insurance companies and are paid on commission d. licensed as insurance agents for a single company and paid a salary

d. licensed as insurance agents for a single company and paid a salary

A Health Reimbursement Arrangement cannot a. be a substitute for health insurance b. be a supplement to cover medical expenses not covered under a company health plan c. pay medical benefits in excess of limits in a company health plan d. provide extra benefits exclusively for a business owner and key employees e. cover dental expenses

d. provide extra benefits exclusively for a business owner and key employees

Sonia has recently received a significant promotion that has allowed her spouse to stay home and be a full-time care provider for their three children. Because they no longer have the security of a second income, Sonia is concerned about the financial impacts that would occur if she were to develop a major illness. What would you recommend for Sonia? a. Consider ways to reduce the family's monthly expenses so that any savings would last longer if Sonia couldn't work b. Consider having Sonia's spouse rejoin the workforce c. purchase the most comprehensive health insurance possible to reduce the likelihood of illness d. purchase short- and long-term disability insurance to provide income during a health-related absence from work e. increase the family's savings rate

d. purchase short- and long-term disability insurance to provide income during a health-related absence from work

If a company budgets a predetermined amount of money to pay for anticipated future claims, that company has chosen to be______________with regard to that risk. a. under-insured b. indemnified c. uninsured d. self-insured e. noncompliant

d. self-insured

One disadvantage of health coverage is: a. disability income policies provide a benefit payment equal to a certain percentage of the individual's income on a regular basis b. it encourages employees to make and keep necessary doctor's appointments, sometimes during work house c. long-term care payments can help an individual's spouse or children retain the individual's assets d. the cost of premiums can be significant

d. the cost of premiums can be significant

The income replacement approach to determining a family's insurance needs is based primarily on? a. the earnings growth rate of long-term U.S. Treasury securities b. regulations issued by the Department of Health and Human Services c. the current balance in the accumulated adjustment account d. the human life value concept

d. the human life value concept

Which of the following types of health insurance was originally designed by an organization of hospitals and physicians to facilitate payment of hospital and doctor bills? a. hospital contract plans b. health maintenance organizations c. commercial health insurance d. self-insurance e. Blue Cross / Blue Shield

e. Blue Cross / Blue Shield

For individuals, primary coverage against personal liability is typically provided by a(n): a. Umbrella policy b. Homeowners policy c. Automobile policy d. Personal liability policy e. Both b and c

e. Both b and c

Which of the following is NOT considered part of the risk management process? a. Identify potential risks b. Evaluate treatment options c. Implement selected treatment options d. Monitor the effectiveness of the treatment e. Prepare reports for stockholders

e. Prepare reports for stockholders

Disadvantages of cafeteria plans include all of the following except a. employer must meet complex tax requirements b. highly compensated employees may lose tax benefits if plan is deemed discriminatory c. cafeteria plans increase employer cost d. employers must still offer basic benefits in addition to a cafeteria plan e. cafeteria plans provide numerous different benefits to employees in addition to basic benefits shared by all employees

e. cafeteria plans provide numerous different benefits to employees in addition to basic benefits shared by all employees

Which of the following is (are) true when comparing short-term disability with long-term disability? a. short-term disability typically covers more employees than long-term disability b. long-term disability policies use a "regular occupation" definition of disability instead of the "any occupation" definition used in short-term disability policies c. short-term disability policies typically are more generous d. all of the above e. only a and c

e. only a and c

All of the following are components of designing and maintaining a health benefit plan, except a. communicating with employees b. financing the plan c. paying claims d. periodically reviewing and updating the plan e. selecting participating physicians

e. selecting participating physicians

Disadvantages of restricted stock plans from the view of the employer include all of the following, except a. issue of new shares of restricted stock tends to dilute ownership b. change in stock value may be unrelated to executive performance c. S corporations must ensure restrictions do not create a second class of stocks d. employer may have no control over amount or timing of tax deduction e. substantial risk of forfeiture must be established for the employee to obtain favorable tax treatment

e. substantial risk of forfeiture must be established for the employee to obtain favorable tax treatment

Which of the following is not an advantage of HSAs? a. HSAs offer tax-saving opportunities to eligible individuals b. the amount that can be accumulated in an HSA can be considerable because there is no actual requirement that HSA account balances be used to pay medical expenses c. a participant in an employer's qualified plan can contribute to an HSA regardless of income d. unused funds in an HSA are not forfeited at year-end and can grow tax free e. when it comes to the 10% penalty for early distributions, HSAs have more exceptions than do IRAs

e. when it comes to the 10% penalty for early distributions, HSAs have more exceptions than do IRAs