Ch 5 Business Plans, Annuities and Taxation

An annuity, purchased for saving money to be used in the future, is an example of a: a) Qualified Plan b) Deferred compensation plan c) Non-qualified plan

(C) Annuities are used to accumulate money for the future. The word "non-qualified" means that the government does not set the rules as to how is operates

What is provided to the owner of a group life insurance policy? a) A certificate of insurance b) Master contract

(B) The owner of the group policy always receives the master contract

An entity that has an unlimited life, and is owned by stockholders is: a) A sole proprietorship b) A partnership c) A corporation

(C) Corporations live forever or until they are dissolved by the corporation.

Most frequently, an annuity is used to assist a person to plan for retirement: a) True b) False

(A) Annuities can be used for other things but they are frequently used for retirement planning purposes

When referring to group insurance participation, non-contributory requires 100% coverage; and contributory requires 75% a) True b) False

(A) This is the definition of non-contributory and contributory coverage

Jeffrey is a client of yours who wishes to retire when he is 65. He wants to use his whole life policy to fund his retirement with an income he cannot outlive. If the policy has been in effect for many years what would you suggest he do? a) Purchase an annuity with the cash value. b) Select the extended term option c)Use a life income with amount certain d) Choose a pure life income option

(A) This choice will allow Jeffrey to convert his cash value into an income that he cannot outlive. This is the only way for the insured to receive a lifetime income from a Whole Life policy.

A flexible-premium deferred annuity allows deferred interest accumulation, assuming the money is on deposit with the insurance company. There is no further amount required to be contributed, and no specific period of time contributions must be made. a) True b) False

(A) The name describes characteristics of the product. Premiums are flexible; the pay out is deferred; the product is an annuity.

Of the following, which best describes an annuity? a) It is generally paid out to the annuitant in a lump sum cash payment b) It has an obligation that is different to the insurance company for both the accumulation period and the liquidation period c) Since it can provide monthly income to a beneficiary, it is said ti create an immediate estate d) Since it can provide monthly income to an annuitant, it is said to create an immediate estate

(B) The insurers obligation during the accumulation period is to invest the money. ITs obligation during the liquidation period is to pay out the money.

Choose the correct statement from the following: a) All entitled employees must be covered in a non-contributory health policy b) Under a contributory group health plan only a small percentage of employees who wish to participate are covered c) Non-contributory group plans have no anti-discrimination requirements d) Contributory group plans require the employee need not pay a portion of the premiums; the full amount is contributed by the employer

(A) Non-contributory plans require 100% participation

A variable annuity is considered a good hedge against inflation since the investment within it is normally: a) A "fixed" portfolio of bonds only b) A separate account of common stocks c) A real estate trust

(B) Common stocks are generally used to hedge against inflation

Bernie's contributory group plan: a) Allows him no insurability requirement, along with lower than individual rate premiums b) Allows him no insurability requirement, and charges higher than individual rate premiums c) States that his family members must prove insurability to be insured under his plan, and he loses coverage if he quits his current position with his employer

(A) Generally, group plans do not require anyone on the plan to prove insurability ( employee or family members) and group rates are always lower than individual rates

The NAIC has no jurisdiction over group life and group health plans. a) True b) False

(A) The NAIC promotes uniformity in insurance regulation amongst the various states. It does not have any jurisdiction pre se.

Master policies are issued to the insureds in group insurance a) True b) False

(B) Master policies are issued to the employer

Of the following, which is a correct statement about annuities? 1. Fixed annuities have a payout period not guaranteed as long as variable annuities 2. A variable annuity will fluctuate with the underlying investment a) 1 only b) 2 only c) Both d) Neither

(B) The name, variable annuities, describes the nature of this type of annuity. Everything about it is variable

A probationary period is best described as a: a) Result of criminal acts against an insurer b) A form of waiting period to receive benefits c) Premium payment time limitation

(B) This is the definition of probationary period

An insurer will pay out an annuity that stipulates monthly annuity payments for life with "10 years certain." How will this be done? a) Only if the insured lives for 120 months b) Until the annuitant dies, after which the beneficiary receives the income for 10 more years (beneficiary gets no less than 10 years of income) c) Until the annuitant dies, but if the annuitant dies before the 10 years is up, the remainder of the 10 years of payment goes to the beneficiary d) Through the 10 years, then a reduced amount will be paid to the annuitant

(C) This is the definition of how a life income with a 10 year period certain works.