EXTRA QUESTIONS LIFE BASICS AND TAXES

Stan Marsh is leaving his employment and will no longer be covered under his group plan. However, under group life insurance, there are conversion rights for employees. You explain to Stan that conversion rights__________. a-are guaranteed without requiring proof of insurability. b-are guaranteed for the employees only, not dependents. c-must be accepted within six months of leaving employment. d-allow the insured to convert the group term to an individual term insurance policy.

a-are guaranteed without requiring proof of insurability.

Which of the following statements would be incorrect regarding the filling out of an application? If an error occurs: a-Neither the producer nor the company can make the change without the written approval of the applicant. b-The producer should take the application back to the insured for the correction. c-Any correction needs a notarized statement from the applicant/insured. d-A single line should be drawn through the error and the insured should initial the error.

c-Any correction needs a notarized statement from the applicant/insured.

Premium given to the insurance company represents the __________ from the applicant. a-Acceptance b-Entire Contract c-Consideration d-Agreement

c-Consideration

All of the following are correct statements regarding a Conditional Receipt, except: a-A conditional receipt is a receipt which gives guaranteed coverage and is issued by a producer. b-A conditional receipt provides coverage on condition that the insurer issues the policy as applied for. c-A conditional receipt is not a guarantee that any claims will be covered. d-A conditional receipt is issued when money is collected with the application.

a-A conditional receipt is a receipt which gives guaranteed coverage and is issued by a producer.

If a producer collects a premium check and issues a conditional receipt on March tenth but fails to send the check to the insurer. When would coverage be effective? a-At the time the check was collected, March tenth b-When the policy is issued, April fifteenth c-When the policy is delivered, April twenty-fifth d-When the check is finally sent in

a-At the time the check was collected, March tenth

Mr. Nguyen has a group life policy and upon leaving his employment he may: a-Convert it to permanent insurance, without proof of insurability within 31 days. b-Not convert it unless requested within 60 days. c-Convert it to any insurance of the same amount, without proof of insurability. d-Convert it to permanent insurance within 31 days, provided he is insurable.

a-Convert it to permanent insurance, without proof of insurability within 31 days. Proof of insurability is NOT required to convert, the conversion must be to a permanent life policy and the conversion must be within 31 days.

If a life insurance contract has violated the Seven-Pay-Test (Modified Endowment Contract) rule of the IRS, all of the following are true, except: a-The amount of proceeds will be reduced, upon the death of the insured. b-The life policy will now be classified as a Modified Endowment Contract. c-If the policy is surrendered before 59 1/2, a 10% penalty will apply. d-The insurance contract is now considered to be over funded.

a-The amount of proceeds will be reduced, upon the death of the insured.

Mr. Burns has just cashed in his life insurance policy. You explain to him that: a-The gain, money received in excess of the premiums paid into the policy, is taxed as ordinary income. b-All cash value received after 59 1/2 is received income-tax free. c-All cash value received is fully taxable. d-None of the cash value is taxable upon surrender.

a-The gain, money received in excess of the premiums paid into the policy, is taxed as ordinary income.

All of the following are correct statements regarding Credit Life coverage, EXCEPT a-The insured (debtor) must qualify for the insurance by completing a minor medical exam. b-The amount of life coverage on the insured (the debtor) may not exceed the amount of the debt owed to the creditor. c-The creditor (usually a bank) is the beneficiary who receives the death proceeds to cover the repayment of a loan in the event the borrower (insured) dies before the loan has been repaid. d-Credit Life is a type of group coverage where a master policy is issued to a creditor (the bank) to insure persons who are debtors of the creditor.

a-The insured (debtor) must qualify for the insurance by completing a minor medical exam.

Max Zabicki applies for life insurance and properly informs the insurer of his heart condition. The life contract is issued. Which of the following statements is true concerning this situation? a-The insurer has waived its rights to deny a death claim due to a heart attack. b-The insurer may delay paying a claim for two years. c-The insurer may deny a claim if death occurs in the contestability period due to the heart condition. d-The insurer will pay only after a court of law has determined that a claim is valid.

a-The insurer has waived its rights to deny a death claim due to a heart attack.

Full protection under an insurance contract is effective when __________. a-the first premium is collected and the applicant is insurable. b-the insured passes a physical exam. c-the policy is received by the insured. d-the policy effective date is issued with the policy.

a-the first premium is collected and the applicant is insurable.

The producer goes to deliver an issued policy. The producer arrives at the home of an insured (owner) to discover that the insured is not home. The producer should: a-Leave the policy at the home to effectuate the 10-day free look. b-Deliver the policy at a later date when the issued policy can be explained to the insured. c-Leave the policy with the spouse to make sure the insured receives it. d-Mail the policy the next day to the insured.

b-Deliver the policy at a later date when the issued policy can be explained to the insured.

The Busy Bean Company applies for life insurance on its key vice president, Harold. The Busy Bean Company is the premium payor and beneficiary, and controls all rights to the policy. All of the following are true, except: a-Harold is the proposed insured, his company is the applicant. b-Harold is the policyowner, his company is the applicant. c-Harold is the proposed insured, his company is the payor. d-Harold is required to show insurability, his company is the beneficiary.

b-Harold is the policyowner, his company is the applicant.

Which of the following is incorrect regarding the Buy and Sell Agreement? a-Life insurance can be used to fund a Buy and Sell Agreement. b-It should be drawn up by the producer/agent of record. c-It states who may purchase a deceased partners share of the business, and at what price. d-It is a legal document.

b-It should be drawn up by the producer/agent of record.

Which of the following is not a correct statement regarding group life insurance as regulated by Section 79 of the IRC? a-The premiums paid by the employer are deductible for the employer. b-Maximum coverage for children may not exceed $10,000. c-The maximum coverage for the spouse may not exceed 50% of the coverage of the working spouse. d-The premiums paid for the coverage over $50,000 are taxable as income to the employee.

b-Maximum coverage for children may not exceed $10,000.

All of the following statements are correct about the Medical Information Bureau, except: a-The insurer must be authorized by the applicant to retrieve and give information to the MIB. b-The insurance company must supply the applicant with copies of the MIB reports. c-The MIB is a non-profit agency established by the insurance industry. d-The insurer must inform the applicant about how they may receive a copy of the MIB report

b-The insurance company must supply the applicant with copies of the MIB reports.

Under the Cross Purchase plan of a Buy and Sell agreement, __________. a-the business buys one policy on each of the partners. b-each owner buys a policy on the other owners, naming himself as the beneficiary. c-each partner buys one policy on his or her own life. d-the policy premiums will be lower since it is a business agreement.

b-each owner buys a policy on the other owners, naming himself as the beneficiary. Under a Cross Purchase Buy-Sell plan, each partner owns, is the beneficiary of, and pays the premiums for life insurance on the other partner or partners in an amount approximately equal to his share of the business.

Acceptance from the insurance company usually means that they have __________ a-rejected the policy. b-issued the policy. c-received the medical information on the insured. d-cashed the check given by the insured.

b-issued the policy.

The principal difference between an entity purchase and a cross-purchase buy-sell is __________. a-the type of the business being protected. b-the identity of the beneficiary and policyowner. c-the amount of the insurance. d-the identity of the insured.

b-the identity of the beneficiary and policyowner.

All of the following statements regarding taxation of life insurance are correct, except: a-Cash Values accrue tax deferred. b-Dividends are tax-free. c-Death proceeds are taxed on a federal level as ordinary income. d-Premiums are not deductible from the income of the insured.

c-Death proceeds are taxed on a federal level as ordinary income.

A life insurance policy was issued for Reba with an additional premium of $300 due upon delivery. You explain to Reba that: a-The additional premium is the commission of the producer. b-The additional premium is needed to pay for losses incurred by the insurance company. c-The policy was issued with a surcharge for a negative health condition. d-The policy was issued with a rate-up because of her religion.

c-The policy was issued with a surcharge for a negative health condition.

What is the difference between a Traditional IRA and a Roth IRA? a-The amount of allowable contributions. b-The use of a deferred annuity to fund IRA . c-The tax deductibility of the contributions. d-Who is allowed to contribute (husband and/or wife).

c-The tax deductibility of the contributions.

The producer collects full minimum premium and a fully completed application. Three days later the insured dies before the producer sends it to the insurance company and before the blood test and EKG can be administered. Which of the following is correct? a-There is coverage since the insured died after the application date. b-There is coverage since consideration was received. The policy will pay a death benefit. c-There is no coverage. d-There is no coverage since the producer did not send the paperwork to the insurance company.

c-There is no coverage.

Which of the following people do not have an insurable interest in each other? a-Two partners who own a service type business. b-A creditor of a debtor to the extent of the indebtedness. c-Two shareholders of a publicly owned corporation. d-Divorced parents of three minor children.

c-Two shareholders of a publicly owned corporation.

Which of the following statements is incorrect when a producer does not collect the initial premium with the application? a-Without the initial premium, the insurance company issues the policy and offers it to the insured. b-Without the initial premium, there is no coverage. c-Without the initial premium, the issued policy guarantees coverage upon the delivery of the contract. d-Without the initial premium, the policy becomes effective when the insured pays the first premium.

c-Without the initial premium, the issued policy guarantees coverage upon the delivery of the contract.

Which one of the following is considered a field underwriter? a-adjuster b-insurance company c-producer acting as an agent d-company underwriter

c-producer acting as an agent

When spouses are to be included in the group life insurance plan of a member which is contributory, then: a-50% of the spouses must be included. b-They must prove their insurability. c-The company decides which spouses are eligible. d-75% of spouses are required to participate in the plan.

d-75% of spouses are required to participate in the plan. 75% participation is required on contributory plans and 100% on noncontributory plans. Everyone is eligible in group insurance and NO proof of insurability is required.

Which of the following would be the main source of underwriting information used by the insurer in the underwriting process? a-Report from the agent b-Attending Physician Statement c-MIB report d-Application from the proposed insured

d-Application from the proposed insured

Which of the following variable life policy owners has taxable income from the transaction shown? a-Susie cashes in her policy for $15,000; she paid $20,000 into it. b-For Marcia, cash values grew $2,000 this year. c-Joan dies; her beneficiary receives $100,000. d-Kevin surrenders his policy for $7,000 after paying $4,000 in premiums.

d-Kevin surrenders his policy for $7,000 after paying $4,000 in premiums. Kevin will have to pay ordinary income tax on $3,000, the gain in the contract.

Which is NOT an element of insurability when buying life insurance? a-Height vs. weight b-Current health c-Past health d-Marital status

d-Marital status

Conversion Rights for employees and dependents in group insurance guarantee that coverage can be continued should the employee do all of the following, except: a-Leave employment. b-Cancel the formal request within 31 days. c-Pay the premiums (based on attained age with no evidence of insurability required). d-Prove insurability.

d-Prove insurability.

Which of the following is an INCORRECT statement regarding the Medical Information Bureau (MIB)? a-The MIB is a non-profit agency supported by the insurance industry. b-The Medical Information Bureau (MIB) maintains files of information that applicants have submitted to other insurance companies and by sharing this information applicant fraud can be detected. c-If an insurance company runs an MIB on an applicant, the applicant would have the same rights that apply under the Fair Credit Reporting Act. d-The (MIB) Medical Information Bureau can check on any applicant, but the applicant will be notified only IF the application for coverage is rejected.

d-The (MIB) Medical Information Bureau can check on any applicant, but the applicant will be notified only IF the application for coverage is rejected. Individuals must be notified that a credit report or Medical Information Bureau report will be run and told how it will be used. Individuals must be told how to obtain a copy of the report. If an insurance company runs the MIB of an applicant, the applicant would have the same rights that apply under the Fair Credit Reporting Act.

An insured submits the required premium along with a fully completed, dated and signed application. The policy issues one month later. When was coverage in effect? a-Time of the Free Look Period b-Time when the owner gets the policy c-Time the policy is issued by the insurer d-Time of the application

d-Time of the application

The primary purpose of the HIPAA (Health Insurance Portability and Accountability Act) Privacy Rule is to a-detect applicant fraud. b-define and limit the use of health information disclosed between insurance companies. c-get a doctor to approve the releasing of health information. d-define and limit the circumstances under which an individual can have his protected health information disclosed to other parties.

d-define and limit the circumstances under which an individual can have his protected health information disclosed to other parties.

If no conditional receipt is issued at the time of the application, a statement of continued good health will be required at the time of a-receipt from approved physician b-policy issue c-policy renewal d-delivery of the policy

d-delivery of the policy

Without the initial premium, if a policy is issued it will be effective when a-the insured accepts the policy and completes a new medical exam. b-the insured accepts the policy and registers with the FTC call center. c-the insured accepts the policy and then returns it to the producer of record. d-the insured accepts the policy, pays the first premium, and signs a statement of continued good health.

d-the insured accepts the policy, pays the first premium, and signs a statement of continued good health. Without the initial premium (sometimes called non-prepaid), the insurer issues the policy and offers it to the insured. The policy becomes effective when the insured accepts the policy, pays the first premium, and signs a statement of continued good health. If the applicant has developed a health problem, the issued policy probably will be rescinded (terminated) by the insurer.

To qualify for life insurance and determine the amount of premium to be charged, the insurance company will consider all of the following, EXCEPT a-the health of the insured. b-the age of the insured. c-the gender (sex) of the insured. d-the monthly income of the insured.

d-the monthly income of the insured. Monthly income is not a factor for qualifying for life insurance and determining the premium. Monthly income is a factor for disability income insurance but NOT life insurance.