Focus
#11. During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal? a) Both interest and principal are taxed; no other penalties are imposed. b) Neither interest nor principal is taxed, but penalties may be imposed. c) Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½. d) Nontaxable principal may be withdrawn first, but the 10% penalty will be imposed if under age 59 ½.
C) taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 1/2
#19. An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe? a) Good health b) Adhesion c) Conditional d) Aleatory
D) aleatory
#27. An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? a) The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. b) The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. c) One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. d) The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
D) the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive
#25. In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe? a) Unidirectional b) Aleatory c) Conditional d) Unilateral
D) unilateral
#14. On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are a) Guaranteed. b) Not taxable since the IRS treats them as a return of a portion of the premium paid. c) Paid at a fixed rate every year. d) Taxable as ordinary income.
B) not taxable since the irs treats them as a return of a portion of the premium paid
#38. The paid-up addition option uses the dividend a) To accumulate additional savings for retirement. b) To purchase a smaller amount of the same type of insurance as the original policy. c) To purchase a one-year term insurance in the amount of the cash value. d) To reduce the next year's premium.
B) to purchase a smaller amount of the same type of insurance as the original policy
#7. What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary? a) Capital gains tax on distributions and no penalty. b) Capital gains tax on distributions plus 10% penalty. c) Income tax on distributions and no penalty. d) Income tax on distributions plus 10% penalty.
C) income tax on distributions and no penalty
#26. Which of the following is TRUE regarding the annuity period? a) It is also referred to as the accumulation period. b) It is the period of time during which the annuitant makes premium payments into the annuity. c) It may last for the lifetime of the annuitant. d) During this period of time the annuity payments grow interest tax deferred.
C) it may last for the lifetime of the annuitant
#40. An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? a) The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. b) The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. c) One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. d) The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
D) the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive