Chapter 8

Art, the owner and insured under a $75,000 life policy, is killed in an accident. He had paid total premiums of $26,000. How much of the $75,000 death benefit that was paid to Art's wife in a lump sum is taxable income to her?

$0

Life insurance premiums are typically based on what increment of the face value?

$1,000

Assume the following persons buy identical life insurance policies from the same company. Generally speaking, who will pay the lowest premium, if all have standard ratings? A. Linda, age 28 B. Thomas, age 28 C. Louise, age 40 D. Joe, age 45

A. Linda, age 28

All of the following statements about the taxation of insurance proceeds are correct EXCEPT A. interest earned on policy dividends is exempt from income tax B. a beneficiary will not be taxed on insurance proceeds paid as a lump sum death benefit C. a policy owner who receives the cash value for a surrendered policy must pay taxes on any gain D. generally, no gain or loss is recognized when one insurance policy is exchanged for another

A. interest earned on policy dividends is exempt from income tax

Under which option does the in insurer hold the death proceeds for a specified period of time and, at regular intervals, pay the beneficiary interest on the proceeds? A. Fixed-period B. Interest-only C. Fixed-amount D. Life-income

B. Interest-only

All of the following statements about accelerated death benefits and viatical settlements are correct EXCEPT A. a terminally ill person receives accelerated death benefits tax-free B. an insured who sells an insurance policy to a viatical company usually receives 100 percent of the policy's face value C. the maximum amount of accelerated benefits that a chronically ill person can exclude from income is limited D. accelerated benefit provisions are standard in most individual and group life insurance policies

B. an insured who sells an insurance policy to a viatical company usually receives 100 percent of the policy's face value

Which of the following factors is most important when computing basic premiums for life insurance? A. Expense B. Interest C. Mortality D.Reserves

C. Mortality

Which of the following statements pertaining to life insurance premiums is CORRECT? A. The premiums for a policy that insures a spouse are tax deductible. B. A company may purchase key-person life insurance and deduct the premiums as a business expense. C. Premiums for group term insurance covering employees are tax deductible, assuming certain requirements are met. D. Premiums for policies in which the insured is someone other than the policyowner are tax deductible.

C. Premiums for group term insurance covering employees are tax deductible, assuming certain requirements are met.

A mortality table reveals which of the following? A. There is no death rate for persons age 99. B. The people who will die in any given year. C. The average number of deaths that will occur each year in an age group. D. The death rate normally is higher in the lower age groups.

C. The average number of deaths that will occur each year in an age group.

All of the following are primary premium factors EXCEPT A. expense B. interest C. dividends D. mortality

C. dividends

Beth, age 50, the beneficiary of her late husband's life insurance policy, has elected to receive the proceeds in monthly installments over the next five years. Due to the insurer's interest earnings, Beth notices that the amount of the payments is often more than what she was guaranteed. What kind of settlement option did Beth select?

Fixed-period

Sarah, age 65, owner of a $150,000 whole life policy, decides to surrender the policy and take the $90,000 cash value in a lump sum. Over the years she has paid a total of $54,000 in premiums. How much, if any, of the payment will be taxed?

$36,000

Art, the owner and insured under a $75,000 life policy, is killed in an accident. He had paid total premiums of $26,000. How much of the death benefit will be included in the gross estate for estate tax purposes?

$75,000

Which of the following statements pertaining to life insurance premiums is CORRECT? A. Premium rates usually are lower for men than women. B. Harold and Billy, both age 25, each buy a whole life policy from the same company. However, Harold has a participating policy, while Billy's policy is nonparticipating. Harold will pay a higher premium. C. The most significant factor in premium rate calculation is interest. D. Lucy, who is substantially overweight, has applied for a life insurance policy. Her weight may affect her insurability, but not the amount of premium on her policy.

B. Harold and Billy, both age 25, each buy a whole life policy from the same company. However, Harold has a participating policy, while Billy's policy is nonparticipating. Harold will pay a higher premium.

Which of the following statements pertaining to life insurance policy settlement options is NOT correct? A. By using the interest-only option, two or more settlement options can be combined for added flexibility. B. Payments under the interest-only option may be made at a rate higher than the guaranteed minimum. C. Diane and Rhonda each are receiving monthly income from their deceased husbands' identical life policies under the fixed-period option. Diane's payments are to be made for 15 years and Rhonda's for 20 years. Diane receives the larger monthly payments. D. Under the fixed-period option, the payment of excess interest will lengthen the payment period.

D. Under the fixed-period option, the payment of excess interest will lengthen the payment period.

Bill names his church as the beneficiary of his $300,000 life insurance policy. When Bill dies, who is responsible for the income taxes payable on the lump-sum proceeds received by the church?

No income tax is payable on the death proceeds.