2 Life Insurance build custom exam

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

Hank, the insured under a $500,000 life insurance policy, had paid $75,000 in premiums when he died unexpectedly. His wife, Sara, is the policy beneficiary and elects to take the death benefit in a lump sum. What amount is considered taxable income to Sara?

$0 Because The death benefit proceeds from a personal life insurance policy that are paid to a beneficiary in a lump sum are not subject to income taxation. This means that Sara will not include the death benefit proceeds in her income for income tax purposes.

What is the minimum number of members necessary for an association to qualify for a group life insurance policy?

10 Because As with employer groups, a minimum of ten people is typically required for an association to qualify for group insurance

As general rule, life insurance policy loans normally become available after a policy has been in force:

3 years Because Policy loans are normally available after the policy is in force for a specified time, typically three years.

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 Because Death benefit amounts are usually modest, reflecting the rider's intent'provide the funds needed to cover funeral costs if a child's dies. Riders may be limited to a specified amount (e.g., $5,000 or $10,000) and/or a small percentage of the base policy's face amount (e.g., 10 percent).

Under Texas law, an individual life insurance policy may, but is NOT required to contain a(n):

accelerated benefit provision. Because All individual life insurance policies that have nonforfeiture benefits (except single premium policies) must provide that if a default in premium payments occurs and the value of the policy is applied to the purchase of other insurance, the policy can be reinstated within three years.

If the Alpha-Omega Corporation wants to provide life insurance for all its full-time employees, it will most likely buy which of the following?

group life insurance Because With group coverage, one master policy covers multiple people'from as few as ten to hundreds or more. The policy is owned by the organization that sponsors the coverage (most commonly an employer). The covered individuals (called plan participants) are not policyowners nor are they parties to the contract. Individual certificates of coverage are provided to each participant to show they are insured.

All of the following are characteristics of straight whole life insurance EXCEPT:

increasing premiums Because The most common type of whole life insurance is ordinary life, also known as straight life. Level premiums are paid until the insured dies or reaches age 120, whichever comes first.

A life insurance settlement option that pays a monthly benefit with no reduction until the second of two people dies is the:

joint and 100 percent survivor option Because Under the joint and two-thirds survivor option, payments are reduced by one-third upon the first payee's death

Funds distributed through a viatical settlement are:

tax-free at the federal level and taxable at the state level in some states Because Per the Health Insurance Portability and Accountability Act (HIPAA), funds distributed through a viatical settlement are income tax free at the federal level. However, they may be taxable at the state level in some states.

A life insurance policy that offers coverage for a specified, limited period with no cash value building up is called a:

term life insurance policy Because Graded premium whole life insurance generally has premiums that begin very low, increase annually for a long period, and then stay level for the rest of the policy.

Which of the following statements most correctly explains the nature of a life insurance policy loan?

A policy loan uses the cash value as collateral, and the cash value continues earning interest whether the loan is repaid or not. Because Life insurance policy loans use the cash value as collateral, and the cash value continues earning interest. Policy loans do not have a repayment schedule.

Natasha is insured under a $500,000 universal life insurance policy. Her son, Todd, is the beneficiary. On October 1, Natasha took a $15,000 loan from the policy and died six months later without paying it back. What amount will Todd receive?

$485,000 less any interest owed on the loan Because The policy's death benefit is reduced on a dollar-for-dollar basis for the amount of the full, unpaid loan at Natasha's death. The insurer will also deduct any unpaid interest from the proceeds. Todd would, therefore, receive $485,000 less any interest owed on the loan.

Tom is a 45-year-old senior accountant employed by ABC, Inc. Under ABC's employer-pay-all group life plan, Tom's coverage is $120,000. The IRS Table I value of what amount of that coverage is taxable to Tom?

$70,000 Because The IRS Table I value of coverage in excess of $50,000 is a taxable benefit to the plan participant, who must include the amount in his or her income for tax purposes.

Alice's annuity imposes a declining surrender charge that begins at 7 percent during the first year of the contract and declines 1 percentage point each year. What would the surrender charge rate be for a full withdrawal in the eighth year of the same contract?

0 percent Because If a deferred annuity imposes a 7 percent declining surrender charge during the first year of the contract, it would be 6 percent during the second year and 5 percent during the third year. The surrender charge is typically a percentage of the contract's accumulated value and usually declines at 1 percent per year. In the eighth year, the surrender charge period ends

Amanda used a basic illustration to help Mark, a potential client, understand how the cash value of his life insurance policy would grow. Mark then agreed to buy the policy. Which of the following best describes Amanda's duties with respect to delivering a copy of the illustration used?

Amanda must deliver a signed copy of the illustration to both Mark and the insurer. Because Amanda is not required to submit a signed copy of the illustration used to the Insurance Fraud Unit.

Which statement regarding life insurance cost-of-living riders is NOT correct?

As the Consumer Price Index (CPI) increases, so does the policyowner's coverage, provided the insured can prove insurability. Because Universal life policies, with their highly flexible terms, are not good candidates for the addition of a cost-of-living rider.

Variable life and variable universal life insurance are similar in all of the following ways EXCEPT:

Both require fixed, set premiums. Because Variable life insurance policies have a fixed, set premium payable for the life of the policy. Variable universal life policies generally require a minimum initial premium to cover first year costs and a minimum death benefit. After that, policyowners do not pay a set amount on a set schedule.

Which of the following statements regarding both term life insurance and permanent life insurance is correct?

Both types are noncancellable by the insurer except for nonpayment of premiums. Because Permanent life insurance is designed to provide coverage for life. Term life insurance is designed to provide temporary coverage.

Which of the following most indicates that a customer is not suited for a fixed annuity?

a need for current liquidity Because The need for current liquidity does not correspond with the fact that annuities are considered long-term investments.

All the following are contained in the NAIC's Fraudulent Viatical Settlements Model Act EXCEPT:

a requirement that only life insurance companies may serve as viatical settlement providers Because The Act defines fraudulent practices that are prohibited in the process of transacting a viatical settlement.

Under standard exclusions, most insurers would deny coverage of which of the following?

an insured serving as an aircraft crew member Because The aviation exclusion excludes coverage if the insured was involved in operating an aircraft as a pilot or crew member. It does not apply to passengers on private aircraft or to fare-paying passengers on commercial and charter airlines.

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) Because A variable annuity's purchase rate is not based on the 2000 CSO Mortality Table.

If Ken becomes eligible (by a medical reason) for payments under his life insurance long-term care rider, he must be certified as unable to perform which of the following?

at least two activities of daily living for at least 90 days Because To become eligible for payments under a long-term care rider for a medical reason, the insured must be certified as unable to perform at least two activities of daily living for at least 90 days.

The typical guaranteed insurability rider lets policyowners buy a specified amount of additional insurance on select policy anniversaries until a specified maximum age. The anniversaries are usually at which interval?

at three-year intervals Because The typical guaranteed insurability rider lets policyowners buy a specified amount of additional insurance on policy anniversaries. Such anniversaries are usually in three-year intervals nearest the insured's age of 25, 28, 31, 35, 37, and 40.

To avoid any appearance that the life settlement involves stranger-originated life insurance (STOLI), life settlement providers typically require that the policy being purchased:

be past its contestability period Because To avoid any appearance that the life settlement involves stranger-originated life insurance (STOLI), which is illegal in many states, life settlement providers typically require that the policy being purchased be past its contestability period.

At what point do insurers need to decide if insurable interest exists?

before entering into the contract Because Insurers decide whether insurable interest exists before entering into the insurance contract.

Deborah is 40 years old. She is insured under a $500,000 life insurance policy and paid $2,500 in premiums for the policy this year. Which statement is correct when Deborah files her income taxes?

Deborah cannot take an income tax deduction for the premiums she paid because they are considered a personal expense. Because Life insurance a person owns is a personal expense. As such, the premiums paid for it are generally not tax deductible.

In some states, employers can buy group life insurance for their employees through a Multiple Employer Trust (MET). All of the following statements about METs are correct EXCEPT:

Each individual employer is issued a separate policy. Because A MET is an arrangement where two or more employers form a trust to buy group life insurance for their employees. The trust owns the policy.

Which of the following statements correctly describes how premiums for group life insurance are treated for tax purposes?

Employers can deduct premiums paid on a group life insurance plan but employees cannot deduct their contributions. Because Employers may deduct premiums paid for all participants in a group life insurance plan but employees cannot deduct their contributions. Employee contributions are not tax deductible.

Which of the following statements correctly describes how employer-paid premiums for group life insurance are treated for tax purposes?

Employers can deduct premiums paid on a group life insurance plan. Because The employer can deduct premiums it pays on a group life insurance plan.

Which one of the following most correctly describes the tax treatment of withdrawals from a modified endowment contract (MEC)?

Full withdrawals and policy loans from a MEC are taxable; in addition to income tax, MEC withdrawals taken before the owner's age 59' are subject to a 10 percent penalty. Because The tax penalty is 10 percent, not 20 percent, but it is waived if the policyowner is disabled. It is not waived if taken in a lump sum-only if it's taken over the owner's lifetime.

Mark and Melanie are a young married couple who own permanent life insurance policies. Expecting their family to grow, they want to increase their insurance protection without having to prove their insurability. Which of the following riders should their agent recommend?

Guaranteed insurability rider Because The guaranteed insurability rider guarantees that the policyowner can buy additional permanent life insurance on the insured's life without proving insurability.

How can a life insurance policyowner use his policy's cash value to help fund his retirement without incurring any taxes on the transaction even if the cash value exceeds his basis in the policy?

He can use the cash value to buy an annuity through a 1035 exchange. Because The policyowner's goal is not to pay taxes on his investment. The use of the cash value may be taxable if it exceeds his basis in the contract.

Sarah, age 40, has just bought a 20-pay whole life policy. Which of the following statements is correct when she turns 60?

Her policy will be paid up and she will stop paying premiums. Because At the end of the 20-year period, Sarah will not receive the policy's death benefit. Coverage will instead continue for her whole life.

With respect to a $75,000 ten-year level term policy, all the following statements are correct EXCEPT:

If the insured dies after ten years, only the policy's cash value will be paid to the beneficiary. Because If the insured dies after this period, the policy expires and no death benefits are payable.

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. Because Funds accumulated in an annuity are not tax exempt.

With respect to term life insurance, all of the following statements are true EXCEPT:

It develops a cash value that is accessible while the insured is alive. Because Temporary or term insurance offers coverage for a specific time period or to a certain age, but it does not accrue any cash value.

John has a $200,000, 20-year level term policy. Which statement is true?

John's beneficiary will receive a $200,000 death benefit if John dies during the 20-year coverage period. John will receive nothing from the policy if he is alive at the end of the coverage term, and the premium will remain level for the full 20 year term. Because This term life policy provides $200,000 of death benefit coverage for 20 years. If John is still alive at the end of the 20-year term, the coverage expires and no benefits are payable since term life insurance does not have a cash value. The premium will remain level, but if John were to renew the policy after 20 years, there would be an increase in the premium at that time.

Johnson is covered under a deferred compensation plan. Which of the following is not true regarding this plan?

Johnson's deferred compensation cannot be forfeited. Because A deferred compensation plan is a nonqualified arrangement under which an employee, normally a senior executive, agrees to defer a portion of his or her salary until a future date (typically retirement), when he or she will likely be in a lower marginal income tax bracket. The deferred compensation is forfeitable in certain situations (for example, if the executive quits and goes to work for a competitor).

Donna, age 40, buys a $200,000 straight whole life policy. Her best friend, Kara, buys a $200,000 20-pay life policy. Which of the following statements is correct?

Kara's policy will build cash value more quickly than Donna's policy while she is paying premiums Because Limited payment life insurance policy premiums are payable over a shorter time than ordinary life premiums. The higher premiums mean the cash value grows more quickly during the premium-paying period than it would with a straight whole life policy over the same period.

Karen bought a life insurance policy at age 23. She added the guaranteed insurability rider to the policy. If Karen buys another policy under the rider at age 39, the premium of that policy will be based on which of the following?

Karen's current age Because The premiums for any future policies Karen buys under the rider are based on her age when she buys the policies.

Which statement about life insurance beneficiary designations is NOT correct?

Legal entities, such as trusts and corporations, cannot be beneficiaries of individual life insurance. Because Insurance buyers are free to choose their beneficiaries with few restrictions.

All the following statements about variable annuity accumulation units are correct EXCEPT:

Like a fixed annuity, a variable annuity's growth is guaranteed. Because The owner assumes the risk of the contract's investment. For this reason, a variable annuity owner also subjects his or her principal to risk.

On September 1, Cheryl applied for a life insurance policy when her nearest birthday age is 50. To take advantage of a younger age, the insurer can backdate the policy no earlier than

March 1. Because Under Texas law, an insurer can backdate the policy up to six months before the application.

Which of the following statements about deferred annuity surrender charges is NOT correct?

Most deferred annuities apply surrender charges for all years after the contract is issued. Because A deferred annuity owner has rights to his or her contract values but may be forced to pay an insurer-imposed charge for withdrawing them.

All the following statements regarding insurable interest in a life insurance policy are true EXCEPT:

Neighbors have insurable interest in each other. Because The following types of personal relationships are automatically deemed to represent an insurable interest: individuals in themselves; spouses in each other; parents in their children; and children in their parents or grandparents (or someone else in the case of financial dependency). Beyond these relationships, the burden of proof lies with the applicant to prove there is an insurable interest in the proposed insured.

Bob bought a $100,000 ten-year level term insurance policy on March 1, 2008. What would happen if he died on March 15, 2018?

No death benefit would be payable. Because Term life is pure insurance protection, with no cash value associated with it. If the insured dies during the coverage term, then the policy's death benefit is payable. If the insured is alive at the end of the coverage term, then the coverage ends, and the policy terminates without value.

If a labor union sponsors a group life insurance plan for its members, which of the following statements is correct?

Premiums must be paid entirely from union funds or from a combination of union funds and member funds. Because Premiums may be paid entirely from union funds or from a combination of union funds and member funds.

Monica wants to take a second loan against her life insurance policy. She has not fully repaid the first loan. Which of the following describes what Monica will find when she attempts to take another loan against the policy?

She can borrow up to the cash surrender value, less her outstanding obligation. Because The policyowner can borrow the entire cash surrender value less any prior debt against the policy. However, the death benefit is reduced on a dollar-for-dollar basis for the full unpaid loan at the insured's death.

Steve owns, and is the beneficiary of, a life insurance policy. If he selects the straight life income settlement option, which of the following best describes how the policy death benefit would be distributed?

Steve will receive payments until his death, at which point payments will stop. Because This describes a fixed period option.

Lisa is 72 years old and is thinking about purchasing a fixed deferred annuity to hold the proceeds gained from the recent sale of her house. Which of the following would suggest that this product may not be well-suited for Lisa?

The annuity has a 10-year surrender charge period. Because A fixed annuity may be suitable for a customer looking for guarantees in a product with low investment risk that may eventually be annuitized, but potentially steep surrender charges, lasting ten or more years, can make deferred annuities unsuitable for seniors who are simply interested in a place to hold their savings.

For insurable interest to exist, which of the following is most correct?

The applicant must be expected to suffer a financial loss when the insured dies. Because The party buying life insurance, who is often the applicant as well as the insured, is routinely the same person who pays the premiums.

All the following statements regarding the designation of a life insurance policy beneficiary are correct EXCEPT:

The beneficiary must have an insurable interest in the insured person. Because A person's estate can be named as beneficiary, though doing so may be unwise if the insured will be subject to estate taxation (since naming the estate as beneficiary would then subject the death benefit to estate taxation).

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. Because The company does not have to drop its coverage for either Hugh or June.

Margaret has a life insurance policy with a face value of $100,000. She took a $25,000 loan against the policy and died a week later after spending $10,000 and without making any payments toward the loan. How will the policy's death benefit be affected?

The death benefit will be 75,000 Because The death benefit is reduced on a dollar-for-dollar basis for the unpaid loan at the insured's death.

Jim's insurance company offers him the option to pay the premium annually or semi-annually. If Jim chooses to pay half of the premium now and the other half six months from now, how will the insurer cover the additional cost of processing his payments?

The insurer charges a modestly higher premium. Because If a policyowner wants to reduce the premium payment by paying a portion of it now and the rest later, the insurer accounts for the lost interest earnings and additional costs by increasing the annual premium.

A joint and survivor income option can allow the joint payees to choose a period certain. Suppose the joint payees choose a ten-year period certain. If the second of the joint payees dies before ten years of income payments are made, then what happens?

The insurer pays the contingent payee for the balance of the ten-year period. Because The insurer pays the contingent payee only for the balance of the ten-year period, however long that is.

If an insured accidentally misstated her age on her life insurance application, what will the insurer do if this is discovered after the end of the contestability period?

The insurer will re-calculate the death benefit. Because The insurer will re-calculate the death benefit even if the misstatement occurred after the end of the contestable period.

Which one of the following most correctly describes the basic tax treatment of deferred annuity death proceeds paid to a beneficiary before the contract is annuitized?

The interest (gain) is taxable but the basis is tax-free. because Unlike life insurance death benefits, the death proceeds from an annuity are taxable to the beneficiary, but only to the extent of the annuity's gain (or interest earnings). The basis is received tax free.

Policyowners can withdraw the interest earnings on their dividends or allow the interest to continue to accumulate. In either case, how is the interest treated for income tax purposes?

The interest earned on the dividend is reported as taxable income in the year credited. Because The interest earned on the dividend is taxable and is included in the policyowner's income in the year credited.

All of the following rules apply to SIMPLE retirement plans, EXCEPT:

The plan must be noncontributory. Because SIMPLE plans can be set up as a 401(k) plan or as individual IRAs for each participating employee.

Andrea bought a $300,000 term-to-55 policy. Which of the following statements about the policy is NOT correct?

The policy will pay the entire death benefit only if Andrea lives beyond age 55. Because Term life is pure insurance protection, with no cash value associated with it. If the insured dies during the coverage term, then the policy's death benefit is payable. If the insured is alive at the end of the coverage term, then the coverage ends, and the policy terminates without value.

Gina owns a $200,000 five-year renewable term insurance policy and wants to renew the policy at the end of the term. In this case, which of the following statements is correct?

The premium for this policy is higher than it would be for a non-renewable term life policy of the same face amount. Because Renewable term premiums are higher than nonrenewable term life premiums to account for the guaranteed right to renew even if the insured has become uninsurable.

If a policyowner partially surrenders an adjustable life insurance policy, which of the following happens?

The premium goes down. Because Adjustable life insurance partial surrenders are a surrendering of a portion of the policy, with a proportionate reduction of the policy's death benefit and a reduction in the future premium.

Which statement about survivorship life insurance policies is NOT correct?

The premiums are about the same as for two comparable single-life policies. Because Survivorship life insurance policies are commonly known as second-to-die policies. They insure more than one person but pay the death benefit only when the second insured (the survivor) dies.

Which of the following best describes how annuities owned by corporations are taxed?

They are taxed differently than personally owned annuities are taxed. Because When owned by non-natural entities like corporations, the accumulating values in a nonqualified deferred annuity are taxable in the year earned (that is, growth is not tax deferred).

Gina has paid $18,000 in premiums over the past six years for her universal life policy, which has a $750,000 face amount. She withdraws $15,000 this year from her policy's cash value to buy a car. How will Gina's withdrawal be taxed?

They will be non-taxable. Because Cash value withdrawals from life insurance are generally treated on a "first-in/first-out" basis. This means that the first funds put into the contract (i.e., the premiums paid) are the first ones taken out. Any withdrawals that Gina makes after all her premium deposits are fully withdrawn will come from interest that has accrued and will be taxable.

Tom, an agent for ABC Insurance Co., must use legal delivery if any conditions are attached to delivery of the policy. What does this mean?

Tom must personally deliver and explain the policy to the client. Because Legal delivery of a policy requires that Tom personally deliver and explain the policy to the client.

Sally buys an individual life insurance policy and one week after her agent delivered it to her she decides she doesn't want it. Will she be able to return the policy and receive a refund of the premium she has paid for it?

Yes, because the request is within the free-look period. Because All life insurance policies must provide a free-look period, typically 10 to 30 days following policy delivery, during which the owner has the right to return the policy for any reason, without insurer approval, for a full refund of premiums paid.

Which of the following riders gives the policyowner the option to increase his or her life insurance policy's face amount based an inflation index?

cost-of-living rider Because Accidental death benefit riders pay a death benefit in addition to the policy's face amount when an accident caused the death.

Which of the following types of life insurance policies would most likely be used to insure the declining balance of a home mortgage?

decreasing term Because Because it has a decreasing face amount, decreasing term life insurance is ideally suited for mortgage protection programs in which the face amount matches the decreasing loan balance

Six months ago, Bill surrendered his life insurance policy for its cash value. He now realizes his mistake and asks to reinstate his coverage. The insurance company is obligated to do which of the following?

do nothing as the company has no contractual obligation to the policy owner at this point Because If Bill surrendered his policy; repayment of back premiums, plus interest, and proof of insurability will not help

Which standard provision in a life insurance policy forbids changes to any policy provision unless it is agreed to and signed by an officer of the insurance company?

entire contract provision Because The reinstatement provision lets the policyowner reactivate a lapsed policy if done within a specified period. It does not address changes to the policy.

Insurance premiums for traditional products reflect all of the following, EXCEPT:

federal laws Because There are no federal laws that impact life insurance premiums.

Liza is guaranteed to receive annuity payments for 15 years from a $150,000 annuity. Payments end in 15 years, but if she dies before the end of 15 years, income will be distributed to her beneficiary for the rest of the period. Under which annuity settlement option is Liza receiving payments?

fixed period Because Under a fixed period annuity payout, payments are made for the specified number of years and then end. Common fixed period payouts are 10, 15, 20, and 25 years. If the annuitant dies during the payout period, income continues to the beneficiary for the rest of that period.

A declared-rate fixed annuity maintains what two interest rate levels?

guaranteed minimum rate and current declared rate Because A declared-rate fixed annuity maintains a guaranteed minimum rate (which extends for the life of the contract) and a current declared rate, which is subject to change periodically.

All of the following are prohibited insurer practices EXCEPT:

investigating insurance applicants Because Applicants must grant approval for insurers to access and use MIB information pertaining to them, something that is requested by the insurer in the application.

By submitting a life insurance application without the first premium, applicant Larry is doing which of the following?

inviting the insurer to make an offer Because When an application is submitted without a premium, the applicant is effectively inviting the insurer to make an offer. Accepting delivery of the policy and paying the first premium is an acceptance of the insurer's offer.

Which of the following types of life insurance beneficiary designation can be changed only with the beneficiary's consent?

irrevocable beneficiary because Once a person has been designated as an irrevocable beneficiary, the life insurance policyowner cannot change the beneficiary without that beneficiary's consent.

All of the following are acceptable reasons for a producer to deliver a new life insurance policy in person to a client, EXCEPT:

it is an opportunity to sell the client some additional life insurance. Because While delivery by mail is permitted in most states, it is recommended that producers deliver new policies in person because it is the producer's responsibility to fully explain the policy. It is also an opportunity to reaffirm the customer's reasons for purchasing the policy, and it is an opportunity to strengthen the client relationship.

The type of life insurance policy delivery that requires delivery to the client in-person by the producer and an explanation of the conditions to be met is called:

legal delivery Because If any conditions are attached to delivery of a new life insurance policy, then legal delivery is required. Legal delivery of a policy requires personal delivery to the client and an explanation of the conditions to be met.

Which of the following usually offers credit life insurance in connection with a transaction?

lender Because Typically, the creditor in a given situation, such as a mortgage bank, would offer credit life insurance.

What is a term insurance policy in which the protection and premium amounts stay the same during the term period known as?

level term Because The most popular form of term life insurance is level term life insurance, which provides a level death benefit for the duration of the coverage term.

Marty receives a $1,000 monthly payment from his annuity, which is guaranteed for life. At his death, the annuity's undistributed accumulated cash value (if any) will be paid to Marty's beneficiary. Under which settlement option did Marty receive benefits?

life income with refund guarantee option Because Under the life income with refund guarantee payout option, the annuitant receives an income for life no matter how long he or she lives. If the annuitant dies before total income payments equal the amount of the annuity's accumulated cash value that has been annuitized, the balance is paid to the beneficiary.

An annuity's basic purpose is to:

liquidate a sum of money and protect against outliving one's income Because While the primary purpose of life insurance is to guarantee the creation of a sum of money at a precise time in the future (i.e., the insured's death), the primary purpose of an annuity is to liquidate a sum of money through the distribution of guaranteed income payments over the annuitant's lifetime.

Under a life insurance policy's incontestability clause, after a certain period the insurer cannot contest a claim for any reason, EXCEPT:

non-payment of premiums Because Incontestability clauses do not mention the insured becoming uninsurable within two years of the application.

Upon the lapse or surrender of a permanent life insurance policy, the cash value is available to the policyowner in the form of:

nonforfeiture options Because Nonforfeiture options give policyowners several ways to receive a policy's cash value upon lapse or surrender of the policy.

Bailey owns a participating whole life insurance policy and received a $200 check when Best Insurers declared a dividend this year. How will this dividend payment be treated for income tax purposes

not taxable Because Life insurance dividends are considered to be a return to owners of participating policies of unearned premiums they paid on their policies. The dividends are basically premium amounts that were more than what the insurer required to cover the costs of its liabilities and operations. For that reason, policy dividends are not taxable when they are paid in cash to a policyowner.

Which of the following is the underwriting method most widely used by insurance companies today?

numerical rating system Because Under the numerical rating system, weights are assigned to selected factors that have the greatest impact on the risk. The proposed insured is evaluated according to each of the selected factors. Then an underwriter assigns numerical debits for those factors that are unfavorable and numerical credits for factors that favorably impact mortality. The numerical rating is then evaluated to determine whether the insured is a standard, substandard, or preferred risk.

In addition to the four basic dividend options, a so-called '5th dividend option' is sometimes available, which basically involves:

one-year term life insurance Because Under the combination or '5th' dividend options, the declared dividend each year buys one-year term insurance in an amount equal to the policy's cash value.

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 Because Paying off the insured's debt is a lump-sum cash need.

What part of a deferred annuity's death proceeds is taxable?

only the gain (investment earnings) is taxable Because The only part of the proceeds that is taxable is that which exceeds the amount the owner paid into the contract, not that which exceeds the annuitant's cost basis.

Under a survivorship life insurance policy, when does the insurer pay the death benefit?

only when the surviving insured dies Because Survivorship life insurance policies are commonly known as second-to-die policies. They insure more than one person but pay the death benefit only when the second insured (the survivor) dies.

Al names his three sons as primary beneficiaries of his life insurance policy without specifying the percentage each should receive. If all three sons are alive when Al dies, the insurance company will:

pay an equal one-third share to each son Because If the policyowner doesn't specify an exact percentage of the death benefit to be paid to each beneficiary, the insurer will divide the proceeds equally among them.

Harry, age 12, is insured under a juvenile life insurance policy presently owned by his father, the premium payor. If the father becomes disabled, which policy rider will waive the premiums until Harry reaches the age of majority and assume ownership of the policy?

payor benefit rider Because A payor benefit rider ensures that a juvenile life insurance policy (insuring the child) stays in force by waiving the premium payment if the premium payor dies or becomes disabled.

Sandra, a single mom, takes out a 'jumping juvenile' life insurance policy insuring her newborn daughter Karen. Which of the following riders would pay the policy's premiums if Sandra dies or becomes totally disabled?

payor benefit rider Because If a person who pays life insurance premiums on a child's life becomes disabled or dies, a payor benefit rider ensures that the insurance stays in force by waiving the premium payment, typically until the payor recovers (in the case of disability) or until the child reaches a certain age (in the case of the payor's death).

Jane has insured her child's life under a juvenile policy, and she pays the premiums. In the event that Jane were to die or become disabled, what kind of rider would prevent the policy from lapsing due to nonpayment of the premium?

payor benefit rider Because The payor of a child's life insurance policy may become disabled or die, leaving the policy subject to lapse if the premium is unpaid. Buying a payor benefit rider avoids this problem.

Kyle applies for an individual life insurance policy. He is in excellent health, does not engage in any risky habits or hobbies, works in a low-risk job and has no history of cancer or other health problems in his family. How would Kyle likely be classified for underwriting purposes?

preferred Because Clearly, Kyle is insurable and in fact is a better-than-standard risk.

All the following are common forms of split-dollar plan EXCEPT:

qualified split-dollar Because All split-dollar plans are nonqualified plans. There is no form of 'qualified' spilt-dollar.

Under which nonforfeiture option does permanent life insurance continue in force with no further need for premiums?

reduced paid-up option Because Under the cash surrender option, the policy is surrendered and the insurer simply pays the cash value to the policyowner in a lump sum. At that point, the policy is canceled and the insurer's responsibility under the terms of the contract end. Surrendered policies cannot be reinstated.

The Fair Credit Reporting Act is primarily intended to:

regulate the use and disclosure of consumer credit information Because State laws prohibit discrimination against any individual based on race, creed, religion, gender, sexual orientation, or physical defects (including blindness) when determining eligibility for coverage.

Timothy buys a declared rate fixed annuity with a guaranteed interest rate of 3 percent. For the first two years of his contract, the annuity paid a current rate of 4 percent. Now, in its third year, the insurer is declaring a new current rate of 5 percent. This new rate is called the:

renewal rate Because The second interest crediting rate (called a renewal rate) will also be guaranteed for a limited time. The same applies to all future renewal rates. It may be higher or lower over time, but never below 3 percent.

Many insurance companies set up a special account that acts like a checking account for beneficiaries who want to control when and how much of a policy's death benefit is distributed. These accounts are called:

retained asset account Because A separate account is where insurance companies maintain assets underlying their variable insurance products, and is not directly accessible by policyowners or beneficiaries.

XYZ Company agrees to pay a portion of Sally's salary for three years following her retirement. This type of deferred compensation is known as a(n):

salary continuation plan Because Under a salary continuation plan, the employer does not actually defer compensation. Rather, it agrees to continue paying a portion of the employee's salary for a limited period after he or she retires

When using illustrations to sell a life insurance policy, an agent must:

show the policy's guaranteed death benefits before non-guaranteed values Because Guaranteed death benefits, surrender values, and other benefits must be clearly labeled as guaranteed and must be shown before non-guaranteed values.

To be considered currently insured, a worker must have earned how many quarters of coverage in the 13-quarter period before he or she dies?

six Because To be considered currently insured, a worker is not required to have 9 quarters of coverage in the 13-quarter period before he or she dies.

The life insurance applicant who meets the insurer's guidelines as an acceptable risk with no special premium rate treatment is considered a:

standard risk Because Applicants with a very high substandard risk rating are declined coverage altogether. Only 2 percent of life insurance applicants are rejected as uninsurable.

Which of the following life insurance settlement options is the least complicated?

straight life Because The straight life income option is the least complicated of the life income settlement options. Under this option, the policy's proceeds are converted into payments that are made for the life of the payee. The payments stop upon his or her death.

Roberta owns a whole life insurance policy and has requested that the beneficiary select a death benefit settlement option "without a life contingency". All of the following would meet this request EXCEPT:

straight life income option Because Lump-sum, interest-only, and temporary fixed payments of principal and interest are Roberta's options under the "without a life contingency" settlement option. Income payments for life or for a specified number of years (life with period certain) would be available only if she had chosen a "with a life contingency" settlement option.

Amy just retired at age 72 and now wants to annuitize her deferred annuity, which is valued at $250,000. She has no surviving family members and wants to find a payout option that will provide her with the largest possible monthly payment. Which annuity settlement option should she select?

straight life option Because Under a straight or pure life income option, the annuitant is paid an income for his or her lifetime, regardless of how long the owner lives. At the owner's death, no further payments are made to anyone. Of the various life contingency income options, the straight life income option provides the largest monthly income payment for a given amount of annuitized funds.

After being injured in an automobile accident, Chris was awarded a sum of money by the court. The award was not made all at once; payments were made over several months. Which of the following best describes this arrangement?

structured settlement Because The correct term is structured settlement, not brokered settlement.

Which of the following most correctly describes the nonforfeiture option(s) available with universal life insurance?

surrender the policy for its cash value or stop paying premiums and continue coverage as long as the cash value will support it Because Universal life policies do not contain the standard nonforfeiture options. Instead, the policyowner can either surrender the policy for its cash value or continue coverage with no further premium payments, in which case coverage will last for as long as the cash value is able to support the policy's monthly mortality and expense charge deductions.

A viatical settlement provider would buy a life insurance policy from a policyholder who most likely is which of the following?

terminally ill Because The viatical settlement provider is the organization that acquires the life insurance policy from the policyholder, or viator. The viator can then use the money from the policy sale to fund health expenses or end of life care.

What part of employer-paid group life insurance-if any-is tax exempt for employees?

the IRS Table I value of the first $50,000 of coverage Because The IRS Table I value of coverage in excess of $50,000 is a taxable benefit to the plan participant, who must include the amount in his or her income for tax purposes.

Which of the following is NOT a party to an annuity?

the agent Because An annuity's beneficiary is the person the owner chooses to receive the contract's values if either the owner or the annuitant dies.

William purchased an annuity that will provide his wife, Anna, with monthly income payments for as long as she lives. In this scenario, what is Anna called?

the annuitant Because The annuitant is the person the owner chooses to receive the periodic annuity payments when the contract annuitizes.

Payment of a life insurance claim requires all of the following, EXCEPT:

the beneficiary's report of the cause of death Because Payment of a claim requires a policy in force at the time of death, proof that the insured died, no evidence that the insured died based on an excluded activity, and a living beneficiary (or designated beneficiary).

Jane is 50 years old and a widow with a young child. The gap in her eligibility for Social Security benefits between the time her dependent child turns 16 and the time Jane turns 60 is known as which of the following?

the blackout period Because Under Social Security spousal benefit rules, once the youngest child reaches age 16, spousal benefits stop until the spouse turns age 60. This period is known as the blackout period.

Who normally owns life insurance used to meet business insurance needs?

the business Because Life insurance used to meet business insurance needs is normally owned by the business rather than the insured executive or employee.

Which of the following states that the applicant must provide both a signed application and payment of the first premium for the policy to become effective?

the consideration clause Because The consideration clause establishes that in exchange for the consideration the insurer promises to indemnify the insured against loss covered by the terms of the policy.

What does the length of an annuity's surrender charge period depend on?

the contract design and the insurer issuing the contract Because The age of the beneficiary is not an issue in determining an annuity's surrender charge period.

Wilson buys life insurance but commits suicide three years later. Wilson's beneficiary will get which of the following from the insurer?

the full death benefit Because Because the suicide occurs after the exclusion period, the insurer will pay the full death benefit.

In a viatical settlement arrangement, who is the viator?

the insured policyowner who sells his or her policy through the arrangement Because The person who helps the insured policyowner through the viatical settlement arrangement is the viatical settlement broker.

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 Because Paying for the insured's funeral is an immediate lump-sum cash need, not an ongoing cash need.

If an employee who was covered under a group life insurance policy dies within 31 days of termination without having exercised his right to convert coverage to an individual policy,

the insurer must pay a death benefit as if the deceased employee had converted to an individual policy Because If a person insured under a group life insurance policy dies within 31 days of termination (i.e., during the conversion period), the insurer must pay a death benefit even if the participant had not converted to an individual policy.

To determine how much life insurance a person needs, an agent will examine the individual's current income, assets and liabilities, goals, current expenses, and risk profile. What is this approach to determining the right amount of life insurance called?

the needs approach Because Under the needs approach, an agent will collect information about a person's income, assets and liabilities, goals, expenses, and risk tolerance.

Under group insurance coverage, one policy covers a number of people. Who owns these group polices?

the organization that represents the group and which sponsors the coverage Because With group coverage, one master policy covers multiple people'from as few as ten to hundreds or more. The policy is owned by the organization that sponsors the coverage (most commonly an employer).

George purchased an annuity in which his wife will receive income for as long as she lives. In this scenario, what is George most correctly called?

the owner Because The agent markets and sells the annuity.

Which of the following is not a potential consequence of replacing a life insurance policy?

the possibility of the new insurer cancelling the replacement policy after it is issued Because Though there are several risks associated with policy replacement, the new insurer canceling the policy is not one of them. Except for non-payment of the premium, life insurance policies are non-cancellable.

Which of the following most correctly describes the underwriting process?

the selection, classification, and rating of risks Because Underwriting is the process that an insurance company uses to determine whether it will issue a policy to an applicant. During underwriting, the insurer tries to determine whether an applicant is insurable, and if so, whether at standard, substandard, or preferred premium rates.

Which of the following is the primary reason for participating in a qualified retirement plan?

to accumulate assets and produce income during retirement Because Retirement plans are designed to build assets over time until they are distributed upon retirement. During retirement, the savings can be distributed in one lump sum and then reinvested to produce periodic income.

If the contract owner or annuitant dies during the accumulation period, fixed annuity contracts provide for a death benefit equal to:

total premiums paid into the contract, plus credited interest earnings, minus previous withdrawals and contract charges Because The death benefit is calculated by adding the total premiums paid plus earnings, minus any withdrawals and contract charges.

How long is the standard incontestability period?

two years from the date of issue Because Under most policies, the incontestability period is two years from the issue date.

The insurance company employee whose primary job is to review applications and determine if the requested policy is issued or declined is called a(n):

underwriter Because During the underwriting process, the underwriter determines whether to insure the risk as applied for and the appropriate premium to charge the applicant for the coverage.

A type of permanent life insurance that lets the policyowner increase, reduce or even skip premium payments at will without the policy lapsing best describes:

universal life insurance Because While it does feature premiums that change over time, modified premium whole life does not permit the premium flexibility described in the question.

A policy owner of a lapsed policy can take the reduced paid-up nonforfeiture option unless the lapsed policy was which of the following?

universal life policy because Unlike other permanent policies, universal life policies normally do not contain the standard nonforfeiture options for policy lapses because universal life insurance remains in force as long as the cash value allows the insurer to make a monthly deduction to cover the policy's insurance and operational costs.

Producers must inform consumers about the practices that insurance companies will use in their review and underwriting processes. Typically, these processes include all of the following, EXCEPT:

using phone taps Because For information about their applicants, insurance companies look to sources including the MIB.

All the following are possible ways to access a universal life insurance policy's cash value EXCEPT:

with a policy loan Because UL policyowners who want to access their policy's cash value can do so through a withdrawal (called a partial surrender) or a full surrender of the policy.

Harry is diagnosed with a cognitive disorder. To become eligible for payments under his policy's long-term care rider, which condition must he meet?

within the past 12 months, a physician-certified that his health or safety would be at risk without supervision Because To become eligible for payments under a long-term care rider for a mental health reason, Harry must prove that his health or safety would be at risk without supervision. The insured must be certified within the last 12 months.

Morgan is the owner and insured of a $1 million life insurance policy. At her death, the proceeds were payable to her son in a lump sum. What amount, if any, must be included in valuing Morgan's estate?

$1 million Because For estate tax purposes, the value of any life insurance policy a person owned when he or she died is included in the value of the estate. Morgan's estate must therefore include the entire amount of the proceeds in her estate for purposes of determining any estate tax liability.

Pam is a 56-year-old vice president employed by Gulf, Inc. Under Gulf's employer-pay-all group life plan, Pam's coverage is $300,000. The value of what portion of that coverage is taxable to Pam?

$250,000 Because The IRS Table I value of coverage in excess of $50,000 is a taxable benefit to the plan participant, who must include the amount in his or her income for tax purposes.

To qualify for a viatical settlement, the insured must be diagnosed as terminally ill or chronically ill. If qualifying as terminally ill, the insured's life expectancy should be no more than:

48 to 60 months Because A person with a life expectancy of no more than 48 to 60 months is generally considered terminally ill for purposes of a viatical settlement.

Which statement about spouse/other insured term riders on a life insurance policy is NOT correct?

A policyowner often buys a term life insurance rider on a spouse to provide additional coverage once the children have grown and moved out on their own. Because The intent of this coverage is temporary.

Assuming no relation other than that stated, in which of the following situations does insurable interest exist?

Al would like to take out a life insurance policy on his wife. Because Insurable interest in personal relationships is generally limited to the applicant and a member of the applicant's family.

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. Because Annuitization under a variable annuity contract provides for income payments that are not fixed and unchanging, like a fixed annuity.

Barb, age 40, buys a ten-pay life policy while Jill, age 40, buys a life paid up at age 65 policy. All other factors being equal, which of the following statements is most correct?

Barb will pay a higher premium than Jill. Because The shorter the premium-paying period, the higher the premium that is charged for a limited payment life insurance policy. Because Barb's policy will be paid up after ten years, her premium will be higher than Jill's.

Variable universal life combines features of variable life and universal life. Variable universal life and universal life are alike in all of the following ways EXCEPT:

Both are considered securities products as well as life insurance. Because Both universal life and variable universal life allow policyowners to choose from two (or occasionally three) death benefit options.

Which of the following statements comparing annuities and life insurance is correct?

Both products are based on the actuarial principles of mortality, interest and expenses. Because Only life insurance has a tax-free death benefit.

Damien just bought a variable annuity from Delta Insurance Company. Which party bears the investment risk with respect to the assets in the separate account?

Damien Because When Damien invests in a variable annuity, his assets will be invested in both a general and separate account. The assets in the separate account are likely to fluctuate in value, and Damien bears this investment risk.

Assuming no relation other than that stated, in which of the following situations does insurable interest exist?

Debbie would like to take out a life insurance policy on herself. Because Insurable interest in personal relationships is generally limited to the applicant and a member of the applicant's family.

All the following statements regarding conditional premium receipts are correct EXCEPT:

Insurers are required to provide the death benefit coverage applied for when issuing a conditional receipt. Because With a conditional receipt, if the applicant proves to be uninsurable (or insurable only as substandard) as of the date of application (or medical exam), no coverage takes effect and the insurer refunds the premium payment.

Which of the following would be likely to offer credit life insurance?

a loan company Because Credit life insurance is designed to cover a borrower in the amount of his or her outstanding loan, which has a decreasing balance over a specific term. A personal loan is an example of such a loan.

Tim adds a provision to his life insurance policy that pays double or triple the amount of the base policy's face amount. He has added which of the following?

accidental death benefit rider Because Accidental death benefit riders pay a death benefit in addition to the policy's face amount when an accident caused the death.

Which one of the following best describes what an agent's goals should be in completing an application for insurance?

accuracy, thoroughness, and clarity Because By the time the application is completed, getting the applicant's signature should be a matter of course.

Andrew's life insurance policy pays an accelerated benefit that is a separate benefit with a separately identifiable additional premium. Andrew's policy uses the

additional premium or cost of insurance charge method. Because In a policy with the actuarial discount method, the death benefit of is reduced by an amount equal to the acceleration of life insurance paid, plus an actuarial discount and any administrative fee.

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 Because Abe is considered the contingent or secondary beneficiary. The contingent beneficiary is the next person (or class of persons) in line to receive the policy proceeds if the primary beneficiary predeceases the insured.

Polly bought a long-term care rider. She becomes eligible for its benefit if she is diagnosed as chronically ill and the diagnosis is the result of which of the following?

either a medical or cognitive (mental health) reason Because This benefit is not available to insureds with any medical problem.

Annuity contracts include a provision to pay a death benefit if the owner or annuitant dies before the contract annuitizes. What does this death benefit typically equal?

either the contract's accumulated value or the amount of premium the owner invested, whichever is greater Because The death benefit typically equals either the contract's accumulated value or the amount of premium the owner invested, whichever is greater.

With respect to the taxation on annuitized income payments, which of the following terms refers to the non-taxable return of basis portion of the payment?

exclusion ratio Because When a deferred annuity is annuitized (or an immediate annuity is purchased), each periodic payment consists partly of non-taxable basis and partly of taxable gain. Determining the split between the two is achieved through the exclusion ratio.

What is the main appeal of joint life insurance?

lower cost Because The main appeal of joint life insurance is its lower cost. The premium is less than it would be for two separate policies offering the same death benefit.

Under the paid-up additions policy dividend option, policy dividends are used to:

purchase a small unit of paid-up permanent life insurance Because Under the paid-up additions option, the dividend buys additional paid-up insurance of the same type as the base policy. The premium rate is based on the insured's attained age at the time of purchase.

What is credit life insurance designed to cover?

the borrower's life Because Credit life insurance does not cover the life of an employee.

With a key person life insurance policy, who is the owner of the policy?

the employer Because With a key employee life insurance policy, the business applies for, owns, and is the beneficiary of the policy covering the life of a key employee.

Mary wants to change the beneficiary of her life insurance policy. As her agent, you inform her that she may do so only if:

the existing beneficiary designation is not irrevocable Because While applicants for insurance must be of sound mind, there is no such requirement imposed on beneficiary designations

Sally is a 25-year-old clerk employed by Acme, Inc. Under Acme's employer-pay-all group life plan, Sally's coverage is $60,000. The value of what portion of that coverage is taxable to Sally?

$10,000 Because The IRS Table I value of coverage in excess of $50,000 is a taxable benefit to the plan participant, who must include the amount in his or her income for tax purposes.

Under the other insured term rider, a person can buy a term life insurance rider to cover the life of a spouse (or other adult). This coverage usually ends sometime before the primary insured reaches which of the following ages?

70 Because The other insured term rider can be used to insure any adult with whom the policyowner has an insurable interest, with spouses and partners most commonly covered. Coverage usually ends when the policyowner (who is usually the policy's insured) reaches age 65 or 70.

Cindy owns a $100,000 straight whole life insurance policy. If she paid the required premiums and lived to age 120, which of the following statements best describes what will happen?

She would get $100,000 as an endowment. Because If Cindy lives to age 120, her premiums will stop.

The Smiths set up a Section 529 prepaid tuition plan for their daughter, Jenna. They invested a total of $15,000, which covers the current cost of two semesters of college at their in-state public university. However, by the time Jenna goes to college, it will cost $30,000 for two semesters. What will happen in this case?

The Smiths' prepaid tuition plan will cover two semesters of college for Jenna. Because With a prepaid tuition plan, the account owner (i.e., parent or grandparent) essentially purchases future semesters, in the form of credits, at current prices. Participating schools accept the credits when the beneficiary (i.e., child) is ready for college, no matter how high tuitions have climbed.

The exclusion ratio applies until all principal in the annuity contract has been paid out. After that, what happens?

The full amount of future annuity payments are treated as taxable income. Because After that, the annuity will not be paid up. Any annuity payments will consist of taxable interest.

All the following statements regarding the role of interest in life insurance premium calculations are correct EXCEPT

The higher the interest rate assumed by the actuary in calculating premiums, the higher the premium is likely to be. Because Policyowner premium payments are invested in the market to earn interest and grow.

Which of the following statements regarding third-party ownership of a life insurance policy is correct?

The insured has no rights in the policy. Because In a third-party arrangement, all rights are held by the policyowner (which is someone other than the insured).

What happens when a universal life insurance policy's cash value no longer covers the monthly deductions to cover the policy's insurance and operational costs?

The policy lapses. Because Unlike other permanent policies, universal life policies normally do not contain the standard nonforfeiture options for policy lapses.

All the following statements about standard policy exclusions are correct EXCEPT:

The war and commission of a felony exclusions are required by law. Because The war and commission of a felony exclusions are not required by law. However, insurance companies commonly include them.

Which of the following statements regarding participating life insurance policies is correct?

They are eligible for policy dividends. Because Participating life insurance policies distribute policy dividends to their policyholders. Stock insurance companies distribute profits to stockholders in the form of stock dividends.

What is the main difference between decreasing term insurance and level term insurance?

Under decreasing term insurance, the death benefit decreases over the policy period while with a level term policy, the death benefit stays level over the policy period. Because Decreasing term life insurance provides face amount coverage that decreases over time, eventually reaching zero at the end of the term. Decreasing term premiums remain level for the full coverage term.

With respect to the difference between variable life insurance (VLI) and variable universal life insurance (VUL), which of the following statements is correct?

Variable life policies require a fixed premium payable for the life of the policy while variable universal life permits premium flexibility. Because Variable life policies have a fixed premium payable for the life of the policy. Variable universal life policies generally require a minimum first premium, but policyowners do not pay a fixed amount on a set schedule after this period.

How is increasing term life insurance normally sold?

as a cost-of-living rider on a permanent life insurance policy Because Insurers offer increasing term insurance as a cost-of-living increase rider on a permanent life policy.

When a deferred annuity is annuitized, which one of the following most correctly describes the tax treatment of the contract's "gain" (i.e., accrued interest) portion of each payment?

It is taxable as ordinary income. Because The exclusion ratio is applied to each annuity payment to determine the portion that is excluded from tax. The balance (the portion attributed to interest earnings) is taxable.

All the following statements about whole life insurance are correct, EXCEPT:

It pays benefits only if the insured dies before age 95. Because Whole life insurance policyowners can access the policy's cash value through loans.

The owner of a universal life insurance policy wants to surrender her policy and apply its cash value to the purchase of extended term coverage. How will the insurance company respond?

It will tell her that she can achieve the same thing with a UL policy by no longer paying premiums and letting the coverage continue as long as the cash value will support it. Because Universal life policies do not contain the standard nonforfeiture options. Instead, the policyowner can continue coverage with no further premium payments, in which case coverage will last for as long as the cash value is able to support the policy's monthly mortality and expense charge deductions.

Jim, age 45, is single and earned $50,000 this year. He owns both a Roth IRA and a traditional IRA. Which of the following statements is correct?

Jim can contribute to both his traditional IRA and Roth IRA , provided the total amount contributed does not exceed the overall contribution limit. Because Jim can maintain both a traditional IRA and a Roth IRA, and he can contribute to both in a given year. However, the maximum amount he can contribute to both is limited to the overall contribution limit.

Joan owns a variable universal life insurance policy that now has a $100,000 cash value and is beyond its surrender charge period. This year, she plans to withdraw $25,000 from her policy's cash value to buy a new car. Which one of the following statements is most correct?

Joan's death benefit will be reduced by $25,000. Because Joan can access her variable universal cash value through a full or partial surrender of the policy.

Lydia annuitizes a deferred annuity and selects a 100 percent joint and survivor annuity with John as the joint annuitant. If Lydia dies before John after annuity payments have begun, which one of the following most correctly describes how the annuity payments will be taxed when they are paid to John?

John will continue to exclude from income the same portion of each payment as originally excluded by Lydia Because If the annuitant selects a payout option that provides for continued annuity payments after the first annuitant's death (e.g., a joint and survivor annuity), the beneficiary will continue to exclude the same portion of each payment until the original basis is distributed.


Kaugnay na mga set ng pag-aaral

Lesson 9 Sentences 2 颜色 衣服 上衣 裤子 鞋子

View Set

health challenges glucose chapter questions

View Set