Life and Health Chapter 6

A Buy-Sell Agreement:

Assures the continuation of the business by providing benefits to the surviving business partners to buyout a business partner's interest in the event one of them dies unexpectedly

The Master Policy for a group life plan goes to the employer. What does a participating employee receive?

Certificate of Insurance

In a group life insurance plan, the employee has control over which of the following?

Choice of Beneficiary

Which of the following is a characteristic of a contributory plan?

Eligible employees pay a portion of the premium

A primary purpose of key person life insurance is to:

Provide the business with money to recruit and train a replacement employee

If an employee does not enroll during open enrollment and they still want coverage, what happens? a. They must provide proof of insurability b. The forms of insurance are more limited when they do apply for coverage c. They cannot obtain as much coverage as those who enrolled during the open enrollment d. They pay more in premiums than those who enrolled during the open enrollment

a. They must provide proof of insurability

Why were industrial policies written? a. To offset funeral expenses b. To provide an additional source of college funds c. To replace lost income due to the insured's death d. To supplement retirement income

a. To offset funeral expenses

All of the following regarding credit life are true, except: a. Usually the creditor pays the premium b. The coverage is on the life of the debtor c. The form of coverage is normally decreasing term insurance d. It can be either in the form of individual or group coverage

a. Usually the creditor pays the premium

When is an entity buy-sell agreement plan used? a. When the entity buys life insurance on each of the owners b. When insurability is an issue c. When the owners are not in the financial position to buy the policies on their own d. When the entity needs an additional tax deduction

a. When the entity buys life insurance on each of the owners

Which statement regarding Social Security benefits is FALSE? a. Widows and widowers cannot receive survivor's benefits before age 62 b. Fully insured workers can receive benefits as early as age 62 c. Spouses of fully insured workers can receive benefits as early as age 62 d. Dependent children of a deceased worker can receive survivor's benefits until age 18 (19 if still in school)

a. Widows and widowers cannot receive survivor's benefits before age 62

Under an Industrial or Home Service Contract, what is normally the face amount of the policy? a. $2,500 b. $1,000 or less c. $10,000 d. $5,000

b. $1,000 or less

T has some heart health issues, but needs some additional life insurance coverage. What options should T consider? a. A group health insurance plan b. A group life insurance plan c. Universal Life Option B d. Adjustable Life

b. A group life insurance plan

Group Life Insurance is usually written as: a. Decreasing Term b. Annual Renewable Term c. Contributory Term d. Increasing Term

b. Annual renewable term

Who is generally named as the beneficiary when a credit life insurance policy is issued? a. Spouse of insured b. Creditor c. Estate of the insured d. Debtor

b. Creditor

A(n)__________ plan is when business partners buy life insurance policies on one another. a. Entity b. Cross Purchase c. Industrial d. Partnership

b. Cross purchase

In which market are Certificates of Insurance issued to insured individuals? a. Industrial b. Group c. Individual d. Franchise

b. Group

In those instances in which the death of a valued employee could cause financial hardship for a company, the company might acquire additional funds through which type of coverage? a. Preferred Insured b. Key Person c. Business Reimbursement d. Employer-Employee Cross Purchase

b. Key Person

With credit life, who is normally the policyowner and beneficiary? a. The insurer b. The creditor c. The debtor's heirs d. The debtor

b. The creditor

Which of the following meets the criterion for being a natural group for group life insurance purposes? a. The group has at least 500 members b. The group was formed for a purpose other than for procuring or reducing the cost of insurance c. All members of the group live within the same zip code d. Members of the group all have a college degree

b. The group was formed for a purpose other than for procuring or reducing the cost of insurance

A grandparent purchases a life insurance policy on their granddaughter. This is an example of _________. a. Wealth Transfer b. Third-Party Ownership c. Key Person Insurance d. Two-Party Ownership

b. Third-party ownership

ABC Enterprises is worth $300,000. There are 3 shareholders and each shareholder is an equal owner of the company. If they establish an entity buy-sell agreement, the entity would have to buy policies in the amount of $____________ on each of the owners. a. $50,000 b. $150,000 c. $100,000 d. $75,000

c. $100,000

The LMC Partnership has 3 partners and is concerned about what would happen to their $300,000 business if one of the partners should die. If they consider a buy-sell agreement, then each partner would have to buy a policy in the amount of $__________ on the other partners. a. $75,000 b. $100,000 c. $50,000 d. $150,000

c. $50,000

If enrolled in an accredited elementary or secondary school, a covered child can continue receiving Survivor Benefits up to what age? a. 16 b. 18 c. 19 d. 21

c. 19

Which of the following best describes Third-Party Ownership? a. A business partner buying a life insurance policy on him/herself b. A policy owned by the insured c. A policy owned by one person insuring the life of another person d. A key employee buying a life insurance policy on him/herself

c. A policy owned by one person insuring the life of another person

Which of the following concerning Noncontributory Group Life insurance is FALSE? a. No evidence of insurability is required on the part of the participant b. 100% participation is required c. An employer pays 75% of the premium d. The employee pays none of the premium

c. An employer pays 75% of the premium

An individual can make changes to their group life insurance plan at any time for any one of the following reasons, except: a. Change in employment status such as going to or from part-time to full-time b. Adding an eligible dependent c. Changing health insurance carriers and deductibles d. Getting married

c. Changing health insurance carriers and deductibles

The Social Security System is funded through: a. The U.S. Treasury b. Internal Revenue Service (IRS) income taxes c. Federal Insurance Contribution Act (FICA) taxes d. State income taxes

c. Federal Insurance Contribution Act (FICA) taxes

If a buy-sell agreement were not in place, all of the following could happen, except: a. Share(s) of ownership transfer to surviving relatives b. Surviving business owner(s) may suffer a loss of income c. Asset reduction due to forced liquidation d. The estate transfer may be sped up due to emergency business liquidation

d. The estate transfer may be sped up due to emergency business liquidation

When an insurer wishes to implement changes to a group life policy, whom must it notify? a. Each participant individually b. The beneficiaries c. Management only d. The group sponsor

d. The group sponsor

To be included in an employer-sponsored group plan, an employee must be employed full time by any of the following, except: a. A subsidiary of the firm b. An active partner c. The immediate group d. A silent partner

d. a silent partner

Industrial life insurance is typically sold in face amounts of :

$1,000 or less

In order for a worker to be qualified for all of the benefits available from Social Security how many credits must be earned?

40 credits

In a credit life plan, who is the beneficiary?

The creditor

A partnership involving four equal partners is valued at $1,800,000. Under a Cross Purchase Plan, the amount of the policy on the life of each partner would be: a. $150,000 b. $1,800,000 c. $450,000 d. $900,000

a. $150,000

Social Security pays an eligible surviving spouse (or minor child) a one-time benefit upon the death of a covered worker. Which of the following is the amount of that benefit? a. $255 b. $355 c. $350 d. $250

a. $255

XYZ Corporation has 59 employees. The company decides to purchase a group life policy and will pay the total premium. What percentage of employees must participate under this arrangement? a. 100% b. 25% c. 75% d. 50%

a. 100%

What is the minimum requirement for currently insured status under the Social Security system? a. At least 6 credits earned in the 13 calendar quarters prior to death or disability b. Have 40 quarters of covered employment c. Have not had a previous Social Security claim d. Earned more than minimum wage

a. At least 6 credits earned in the 13 calendar quarters prior to death or disability

With a Contributory Group Life Plan, what percentage of the employees must participate? a. At least 75% b. At least 60% c. At least 50% d. A full 100%

a. At least 75%

Which of the following types of buy-sell agreements provides for a business to purchase a life insurance policy on each business partner? a. Entity Plan b. Stock Redemption Agreement c. Cross Purchase Plan d. Key Employee Plan

a. Entity plan

Industrial insurance is also known as: a. Home service b. Ordinary c. Surplus lines d. Group

a. Home service

Under an Entity Purchase Plan form of a Buy-Sell Agreement, the business is all of the following, except: a. Insured b. Policyholder c. Beneficiary d. Premium payor

a. Insured

To help protect against experiencing immediate claims, group plans have a(n) _______ period set up by the group sponsor. a. Probationary b. Conversion c. Open enrollment d. Elimination

a. Probationary

All of the following are characteristics of Credit Life Insurance, except: a. The debtor generally is both policyowner and beneficiary b. The amount of the insurance benefit must not exceed the total amount of indebtedness c. This insurance is normally Decreasing Term and the amount of insurance reduces as the obligation reduces d. The insurance is either a form of individual coverage on the life of a debtor, or a form of group insurance issued to a creditor providing coverage for debtors

a. The debtor generally is both policyowner and beneficiary

The Social Security Death Benefit is payable to the ____________. a. The surviving spouse b. The estate of the insured c. The named beneficiary d. The next of kin

a. The surviving spouse

The advantage of an insurance funded buy-sell agreement is: a. The surviving spouse becomes the new partner in the firm b. The estate transfer may be delayed due to forced business liquidation c. It is a legally enforceable agreement, which pre-establishes the value of the business, and provides the funds for an efficient method of transferring the deceased's business interest d. Assets are forced to be sold to generate cash to pay for the business interest of the deceased partner

c. It is a legally enforceable agreement, which pre-establishes the value of the business, and provides the funds for an efficient method of transferring the deceased's business interest

The Social Security Survivor Benefit is computed using which of the following? a. FUTA b. FICA c. PIA d. ERISA

c. PIA

All of the following are correct regarding Key Employee Life Insurance, except: a. The beneficiary (the employer) typically receives the death benefit free of federal income tax b. The employer has an insurable interest in the key employee c. Premiums are deducted from the employee's salary d. The employer is the owner/applicant of the policy

c. Premiums are deducted from the employee's salary

Which of the following is a likely outcome if a buy-sell agreement in a two person partnership is not in place when one of the partners dies? a. The value of the business will increase b. Partnership transfer taxes are due within 9 months c. The surviving spouse of the deceased becomes the other partner d. The agreement will need to go through the probate process

c. The surviving spouse of the deceased becomes the other partner

A consumer should know the following aspects of a group insurance policy, except: a. The plan sponsor has a say in the form and amount of coverage available to plan participants b. If covered under an employer group plan, the employer can discontinue the plan at any time c. Upon separating from the group, the group life coverage is not convertible d. At renewal, the premium can be increased, in which case it may become unaffordable

c. Upon separating from the group, the group life coverage is not convertible

Franchise insurance is also know as _________ insurance. a. True Group b. Whole Life c. Wholesale d. Term Life

c. Wholesale

Carla finances the purchase of a new car. The cost is $30,000. How much credit life insurance can be issued to cover this loan? a. $60,000 b. $40,000 c. $50,000 d. $30,000

d. $30,000

To have Currently Insured status under Social Security, a worker must have at least _____ quarter credits during the 13-quarter period ending with the quarter in which the worker dies, becomes disabled, or reaches retirement age. a. 20 b. 12 c. 3 d. 6

d. 6

The lowest monthly Social Security retirement benefit would occur if started at age _______. a. 65 b. 60 c. 67 d. 62

d. 62

The underwriter's greatest concern when underwriting a group plan is ____________. a. The amount of dividends that may have to be paid out b. The anticipated investment returns c. The overall cost of the plan d. Adverse selection

d. Adverse Selection

________ Insured under Social Security means that a worker has at least 6 work credits during the 13-quarter period ending with the quarter in which the worker dies, becomes disabled, or reaches retirement age. a. Fully b. Under c. Partially d. Currently

d. Currently

The __________ allows an insurer to pay death benefits anyone it deems to be entitled in the absence of a designated beneficiary. a. Policy's Settlement Option b. Next of Kin Clause c. Creditor Collection Clause d. Facility of Payment Clause

d. Facility of Payment Clause

When an underwriter evaluates the risks presented with a particular group life application, which of the following is considered the most important? a. The plan sponsor's credit rating b. The overall health of the group c. The sales volume of the employer d. Group size, turnover, average age and purpose of the group

d. Group size, turnover, average age, and purpose of the group

The proceeds from a _________ plan provide the necessary funds to recruit, hire, and train a replacement employee. a. Group b. Entity c. Cross purchase d. Key employee

d. Key Employee

Lorraine's position has been terminated, and she is interested in converting her group life coverage to an individual policy. In the process, she will find all of the following to be TRUE, except: a. The premium will be higher than the group premium b. If she waits until the conversion period has closed, she will lose the ability to convert her coverage c. She has 31 days of eligibility to convert to the private plan without having to prove insurability d. She will be converting her group term benefit to an individual term benefit

d. She will be converting her group term benefit to an individual term benefit

All of the following are characteristics of Home Service (Industrial) Insurance, except: a. Industrial policies generally have a face amount of $1,000 or less b. A Debit Agent sells policies house-to-house c. The settlement option is a lump sum payment d. The Grace Period is 10 days

d. The Grace period is 10 days

Which of the following statements is FALSE regarding Credit Life Insurance? a. The insurance will terminate if the debt is prepaid or refinanced b. Usually the individual debtor pays the premium monthly c. The creditor must apply the insurance proceeds to the discharge of the loan d. The amount of coverage is dependent upon the duration of the loan

d. The amount of coverage is dependent upon the duration of the loan

An employee who is covered under an employer group life insurance plan may assume all of the following are TRUE of the opportunity of conversion, except: a. No proof of insurability is required b. The premiums are greater than what was being paid for the group life insurance c. The policy to which the employee converts is individual permanent insurance d. The employee chooses which type of insurance to convert to

d. The employee chooses which type of insurance to convert to