Life Insurance
A life insurance policy matures or endows when its guaranteed cash value equals its face amount. With an endowment contract, when does the policy endow?
well before age 120, usually at age 65
When may life insurance policy dividends be taxed?
when the dividends earn interest
When selling a life insurance policy that replaces an existing policy, the agent must leave all of the following items with the applicant EXCEPT:
confirmation that any existing insurers have been notified of the replacement
Susie was the intended recipient of death benefit proceeds from a life insurance policy insuring her husband, but she died a few months before him. Per the policy's beneficiary designation, the proceeds were paid to their son, Abe, who is considered the:
contingent beneficiary
A financial product that lets consumers save money in a tax-deferred manner and may eventually be used to provide income that is guaranteed for life best describes a(n):
deferred annuity
Which of the following is not a factor in determining life insurance premiums?
dividends
The type of Section 529 plan that builds a tax-free pool of money the account owner can use to pay for qualifying education expenses including tuition, fees, room and board, and books is called a(n):
education savings plan
All of the following are common uses of key person life insurance EXCEPT:
encouraging employee loyalty
XYC Company buys insurance on one of its top officers, naming her as the policyowner, and pays the premiums which the employee must report as income. What type of nonqualified plan is this?
executive bonus plan
Dana bought a $100,000 whole life insurance policy at the age of 30. Twenty years later, Dana decides to use her policy's $20,000 cash value to buy $100,000 of term life insurance based on her current age of 50. This provides her with life insurance for about 14 years. What policy feature is Dana using?
extended term option
When a policy has been issued on a substandard (rated) basis, which nonforfeiture option is normally NOT available?
extended term option
Oscar has saved $250,000. He is 67 and working part time, and would like to fully retire now and receive monthly payments for life. What type of annuity is the best choice for Oscar?
fixed immediate annuity
Certain safeguards keep the policyowner from losing benefits because of nonpayment or late payment. One of these safeguards, available with every life insurance policy, is which of the following?
grace period
Stacey wants to purchase a life insurance policy with a lower premium in the early years that increases in several steps until leveling off after about 10 years and remaining level for life thereafter. Which policy would best suit Stacey's needs?
graded premium whole life insurance
Policyowners can buy additional permanent life insurance without proof of insurability under which type of rider?
guaranteed insurability rider
Karen, 58, is applying for Social Security disability benefits. If approved, her benefit amount will be based on which of the following?
her projected primary insurance amount (PIA) when the disability occurred
Which statement about survivorship life insurance policies is NOT correct?
The premiums are about the same as for two comparable single-life policies.
All the following statements about disability income riders are correct, EXCEPT:
To prevent overinsurance, a policy with a disability income benefit rider cannot also have a waiver of premium provision.
What is a terminally ill person who sells his or her life insurance policy through a viatical settlement known as?
viator
An employee has $75,000 in coverage under Jackson Company's non-contributory group life insurance policy. The employee will be taxed on the value of what amount of coverage?
$25,000
In a trustee-to-trustee IRA rollover, what percentage of the rollover amount must the current trustee withhold for tax purposes?
0 percent
Under traditional whole life insurance plans, policy loans can be as high as what percent of the cash value?
100 percent
ABC Life Insurance Co. just sold Alex a new life insurance policy that will replace his existing policy. Alex may examine the policy and return it within how many days if he is not satisfied for any reason?
30 days
Which of the following types of qualified plan permits both employee and employer contributions and is available only to nonprofit organizations such as charitable, educational, and religious institutions?
403(b) plan
Which of the following types of qualified defined contribution plans is available only to employees of state and local governments?
457 plan
Assuming they meet the age and financial dependency requirements, each parent of a deceased worker is eligible to receive Social Security survivor benefits equal to:
75 percent of the worker's PIA if two parents are eligible, or 82.5 percent of the PIA if only one parent is eligible.
According to the Health Insurance Portability and Accountability Act (HIPAA), which of the following most correctly describes how accelerated life insurance benefits are taxed?
Accelerated benefits paid to the insured are not taxable if the insured meets the definition of being terminally ill or chronically ill.
Which of the following statements regarding life insurance accelerated benefits is correct?
An accelerated benefit rider pays out part or all of the policy's face value while the insured is still living.
With respect to variable annuity annuitization, which of the following statements is NOT correct?
Annuitization under a variable annuity contract provides for income payments that are fixed and unchanging, like a fixed annuity.
Charlene owns a "home service" life insurance policy, which means she most likely pays her premiums in which of the following ways?
weekly to her agent who comes to her home
Which of the following individuals would be most likely to enter into a viatical settlement?
Ben, who is terminally ill and needs money to pay his medical bills
Kelly owns a deferred annuity. What options does she have for using the funds accumulating in her contract before the annuitization date?
They can be withdrawn, partially or in full, before the contract annuitizes.
Cindy, age 51, withdraws $15,000 from her 401(k) plan so that she can buy a new boat. All the following statements regarding this are correct, EXCEPT:
Cindy can avoid taxation if she can demonstrate to the IRS that the boat was essential to her financial well-being.
Which of the following most correctly explains why a deferred annuity would not be an appropriate college savings vehicle for a 30-year-old new dad?
Distributions are subject to penalty taxes before age 59' as well as potential surrender charges.
All of the following distributions from a qualified plan are exempt from the 10 percent penalty tax on premature distributions, EXCEPT:
Distributions made because the participant needs the funds to pay for homeowners insurance premiums.
All of the following statements regarding the use of deferred annuities in retirement planning are correct, EXCEPT:
Earnings grow on a tax-free basis only when a deferred annuity is used to fund a qualified retirement plan.
Which of the following statements regarding the tax treatment of endowment contracts is correct?
Endowment contracts no longer get the good tax treatment given to life insurance policies.
How does the cost of group life insurance generally compare to the cost of individual life insurance?
Group life is less expensive.
Gloria chooses to take her life insurance policy dividends in cash. The insurance company sends a check for the amount of the declared dividend on the anniversary date of the policy. What is the tax consequence to Gloria for receiving cash dividends?
Her dividends are not income taxable.
Hillary purchased a fixed deferred annuity from ABC Insurers and named her daughter, Bess, as annuitant and her husband, Charles, as beneficiary. Which of these parties is specifically authorized to make withdrawals from the annuity prior to annuitization?
Hillary
Which of the following statements about children's term riders is correct?
If a child converts coverage to a permanent policy, the new policy's face amount can be greater than the term rider coverage.
Why do most insurers require a waiting period of three to six months before the disability income benefit rider begins payments?
Insurers want to make sure the disability is permanent before beginning payments.
Funds collect within an annuity on a tax-deferred basis. What does this mean?
Interest earnings and growth are not taxable to the owner while they accumulate in the contract.
What does a viatical settlement allow?
It allows a chronically or terminally ill insured to gain a sum of money that is needed to pay medical expenses or to enhance the quality of life.
Which of the following statements regarding a $100,000 level term-to-65 policy is correct?
It provides $100,000 of coverage until the insured reaches age 65.
Nicole, age ten, is the insured in a traditional "jumping juvenile" policy with a $5,000 face amount. When she reaches age 21, what will most likely happen to the policy's face amount?
It will increase to $25,000.
With respect to the interest-only life insurance settlement option, what happens to the death benefit proceeds that the insurer was holding upon request by the beneficiary?
The insurer pays the proceeds, either in a lump sum or under one of the other settlement options.
If the policy loan amount plus interest owed is greater than the policy's cash value, which of the following will happen?
The insurer will cancel the policy.
Which of the following statements about the interest-only life settlement option is NOT correct?
The interest rate paid by the insurer is the lesser of current rate or guaranteed rate.
Angela is the beneficiary of her mother's group life insurance policy. At her mother's death, Angela decides to receive the proceeds under a life with term certain settlement option. Which portion of the benefit payments, if any, will be subject to taxation?
The portion representing the interest on the death proceeds is taxable.
All the following statements regarding insurable interest in a life insurance policy are true EXCEPT:
Neighbors have insurable interest in each other.
Blake, age 39, just purchased a 20-pay whole life policy. What happens when he turns age 59?
No further premiums will be required but the policy will remain in force for life.
Carolyn bought a $500,000 five-year renewable term policy with a guaranteed renewal rate. Two years after buying it, she develops cancer and is no longer insurable. If Carolyn is alive at the end of the five-year term, which of the following statements is most correct?
She can renew the policy but must pay a higher premium based on her age at the time of renewal.
Which of the following statements about the funding of Social Security benefits is correct?
The FICA tax is allocated between OASDI and Medicare.
Life insurance has been purchased by ABC Company on the lives of two partners, Hugh and Danny, and three key employees Eileen, Vern, and June. Which of the following would apply if Hugh and June were to leave the business?
The company could keep the life insurance it has on both Hugh and June, even though both are no longer employed there.
In an annuitant-driven deferred annuity contract, what happens upon the death of the annuitant prior to annuitization if the owner is still alive?
The contract terminates and the death benefit is paid to the beneficiary.
In an owner-driven deferred annuity contract, what happens upon the death of the contract owner prior to annuitization if the annuitant is still alive?
The contract terminates and the death benefit is paid to the beneficiary.
Interest that accumulates on funds paid into deferred annuities is taxed in which of the following ways?
The funds are not taxed while they remain in the annuity.
If the insured under a whole life policy is diagnosed with terminal cancer and wishes to use his life insurance to take a final vacation with his family, which of the following statements is most correct?
The insured could enter into a viatical settlement, which would provide him up to 50 to 80 percent of the policy's death benefit.
Which of the following statements regarding third-party ownership of a life insurance policy is correct?
The insured has no rights in the policy.
A policyowner may divide premiums for a variable universal life insurance policy between a fixed account and variable subaccounts. With respect to this policy, which of the following statements is NOT correct?
The insurer bears the investment risk of any losses.
Which of the following statements about the taxation of annuities is correct?
With few exceptions, a 10 percent penalty tax is imposed on nonannuitized withdrawals before age 59'.
Required minimum distributions (RMDs) are required with all the following types of qualified retirement plans EXCEPT:
a Roth IRA
Brenda owns a nonqualified deferred annuity. Through a Section 1035 exchange, she can exchange her annuity income tax-free for which of the following?
a nonqualified annuity only
The death benefit amount under a children's term rider may be limited to a specified amount and/or:
a small percentage of the base policy's face amount
When completing an application for life insurance, Andrew states that he is 39 years old, though he is actually 45. When the insurer discovers this, what will it probably do?
adjust the benefits
Catch-up contributions may be made to an IRA by workers who are:
age 50 and older
The parents of a deceased worker are eligible to receive Social Security survivor benefits if they are:
age 62 or older em>and dependent on the covered worker for at least 50 percent of their financial support
To avoid a modal premium fee, a life insurance policyowner should pay premiums:
annually
A variable annuity's purchase rate is the amount of ongoing income that can be provided by $1,000 of the contract's accumulated value. The purchase rate is based on which one of the following?
assumed interest rate (AIR)
After Bob and Karen won the lottery, their state lottery board offered them a choice in how to receive their winnings. Instead of a lump sum, Bob and Karen chose to receive the funds in installment payments over a 10- to 20-year period. In this case, what is the state lottery board most likely to do?
buy a structured settlement annuity from an insurance company to pay a stream of income to the lottery winners over the specified period
What do covered employees receive to show they have coverage under a group life insurance policy?
certificate of insurance
Which of the following types of life insurance beneficiary designation can be changed only with the beneficiary's consent?
irrevocable beneficiary
In applying for a whole life insurance policy, Andrea disclosed that she is an avid rock climber. To account for this high-risk hobby, the insurer may do any of the following EXCEPT:
issue a term life rather than a whole life insurance policy
When they annuitize their deferred annuity contract, a couple receives a monthly income of $1,200. Under which of the following annuity settlement options would a reduced payment of $600 continue to the survivor for life upon the first annuitant's death?
joint and one-half survivor option
If a couple wants an annuity settlement option that will continue making payments for as long as either is alive, no matter which of them dies first, which of the following settlement options best suits their need?
joint and survivor life income
An annuity's basic purpose is to:
liquidate a sum of money and protect against outliving one's income
Don intends to withdraw from his market-value-adjusted annuity (MVA) account before the end of his contract period. When he does withdraw, the interest rate will ideally be which of the following?
lower than the contract's guaranteed rate
Which of the following discourage deferred annuity contract owners from surrendering their annuity and moving the money to a new annuity when rates are rising?
market value adjusted annuities
When he applied for his life insurance policy four years ago, Terry omitted any information in the application related to treatment he had received several years earlier for a serious chronic illness. Which of the following actions can the insurance company take when it learns of the omission?
nothing
In helping a prospective customer determine the lump sum of money his survivors would need at his death, it's necessary for the agent to consider all the following EXCEPT:
ongoing monthly expenses
Dividend options apply to which of the following?
participating life insurance policies when dividends are declared by the insurer
If the insured dies during a life insurance policy's grace period without having paid the premium, what will be the insurance company's response?
pay the death benefit after deducting the unpaid premium
If a worker has over 40 OASDI quarters of coverage what is his or her Social Security worker status?
permanently insured
Most disability income benefit riders also include which of the following?
provision for a waiver of premium
What must an annuity owner do to withdraw funds from his or her annuity contract?
request it from the insurer
Life insurance policies are generally prohibited from including provisions that would do any of the following EXCEPT:
require the policyowner to notify the insurer if he or she assigns the policy to a third party
The guaranteed insurability rider is generally available with all of the following types of policies EXCEPT:
term life insurance
Part 1 of a life insurance application generally contains:
the applicant's personal information
All of the following must sign life insurance applications, EXCEPT:
the beneficiary
With a key person life insurance policy, who is the owner of the policy?
the employer
Who normally pays for medical exams or lab tests that insurance companies request?
the insurance company
When calculating the surviving family's ongoing cash needs at the death of the prospective customer, the agent must consider all of the following expenses EXCEPT:
the insured's funeral expenses
What is the primary distinction between individual life insurance and group life insurance?
the number of lives covered under the policy
If a variable universal life policyowner chooses death benefit option 3, what will the benefit equal?
the policy's specified amount plus the greater of total premiums paid or actual cash value
Life insurance company underwriters may request a medical exam or lab test based on any of the following criteria, EXCEPT:
the sex of the applicant
All the following statements regarding a life insurance policy's accelerated benefits provision are correct EXCEPT:
to qualify for accelerated benefits, the insured must be certified as having a terminal illness
Some types of transfers are not "transfers for value" and therefore are not taxable under the transfer-for-value rule. Which of the following transfers is taxable upon the insured's death?
transfers to a sibling (who is not the beneficiary)
A Section 259 prepaid tuition plan may cover:
tuition and mandatory fees only
Val has owned a whole life insurance policy for the past 25 years. She would like to use the values in her existing policy to purchase a new variable universal life policy. Which strategy should she use to ensure neutral tax treatment and to avoid taxation of any policy gain?
use a Section 1035 exchange of the existing policy for a new policy