CLU- Life Insurance Intro Practice Exam questions
Which of the following factors is a requirement for triggering the transfer for value rule? (LO 6.4) Question 54 options: A) Consideration B) Lack of insurable interest C) A "permanent" insurance policy D) A policy loan
A) Consideration
Some rules of thumb when considering the duration of need include which of the following? (LO 5.1) I. Buy term insurance if the need will probably last for ten years or less. II. Buy term insurance if the policy will be continued up to or beyond age A) I only B) II only C) Both I and II D) Neither I nor II
A) I only
Which of the following are key goals of DBO plans? (LO 9.11) I. Provide a significant death benefit. II. Provide additional funding for a qualified retirement plan. Question 89 options: A) I only B) II only C) Both I and II D) Neither I nor II
A) I only
An individual owns a life insurance policy with an investment in the contract of $75,000 and a cash value of $125,000. Over time, the individual withdraws $85,000 from the contract. How much of the withdrawal will the individual be required to recognize for income tax purposes? (LO 6.1) Question 52 options: A) $0 B) $10,000 C) $50,000 D) $85,000
B) $10,000
What are the three primary factors in premium calculations? (LO 1.3) A) Agent commissions, mortality, and expense ratios B) Agent commissions, interest rates, and lapse rates C) Interest rates, expenses, and mortality D) Interest rates, morbidity, and company dividends
C) Interest rates, expenses, and mortality
All of the following statements about the tax aspects of ownership of variable life insurance are correct EXCEPT: (LO 3.5) A)Transfers of investment assets from one fund to another are tax free. B)Gains received are taxable at capital gains rates. C)Investment earnings within the policy are tax deferred. D)Death benefits are usually paid free of federal income tax.
B)Gains received are taxable at capital gains rates.
Which of the following is (are) a potential market for joint life insurance? (LO 4.3) I. Unmarried head of household II. Buy/sell funding A)I only B)II only C)Both I and II D)Neither I nor II
B)II only
When might a fixed annuity be a good choice? (LO 4.5) A)Safety of principal is paramount. B)A guaranteed interest rate is wanted. C)A conservative complement to other investment vehicles is desired. D)All of the above.
D)All of the above.
All of the following are disadvantages to owning an Indexed Universal Life product EXCEPT: (LO 3.7) A)Insurance companies may change crediting formulas over time. B)Illustrations of these products can be unreliable. C)Lapse of these types of policies can cause adverse tax consequences. D)Distributions are treated similar to distributions from annuities.
D)Distributions are treated similar to distributions from annuities.
Which of the following are reasons why an individual might want to make a gift of life insurance? (LO 8.4) I. Proceeds can be removed from the estate at a relatively low gift tax cost. II. The cash value of the life insurance is always removed from the grantor's estate. A) I only B) II only C) Both I and II D) Neither I nor II
A) I only
The requirement imposed by law and by insurers to prevent "gaming" or "wagering" by one party on the life of another through insurance is called what? (LO 5.7) Question 47 options: A) Insurable interest B) Anti-fraud rule C) Transfer for value rule D) Incontestable clause
A) Insurable interest
Insurance companies base their mortality assumptions on (LO 1.3) A) the experience of large groups of people. B) published mortality results of the five largest European life insurance companies. C) the original 1900 Commissioners Standard Ordinary mortality tables. D) assumptions made by actuaries employed by NAIC.
A) The experience of large groups of people
Cash value increases in a life insurance policy are not usually taxable income as long as (LO 1.2) A) the policy remains in force. B) the increase comes from premium payments, not investment returns. C) the increase comes from investment returns only. D) the policyholder does not make any changes to the death benefit
A) the policy remains in force.
Which disability policy covers normal, necessary, and customary expenses incurred to run the business? (LO 4.7) A)Business overhead insurance B)short-term disability policy C)Guaranteed renewable insurance D)Residual disability policy
A)Business overhead insurance
When would a no-lapse universal life (NLUL) policy be best indicated for a client? (LO 3.9) I. When the client needs long-term protection II. When the client wants to use the policy as a cash reserve for future loans or distributions A)I only B)II only C)Both I and II D)Neither I nor II
A)I only
Question 10 (1 point) Under the income replacement approach, insurance value is always _______ the human life value. (LO 1.6) Question 10 options: A)less than B)one half of C)increased by D)related to
A)less than
What is the underlying purpose for establishing a buy/sell agreement? (LO 9.1) Question 82 options: A) Propping-up stock prices B) Business continuation C) Eliminating market fluctuations D) Directly increased stock valuation
B) Business continuation
All of the following are advantages of fully-insured pension plans (i.e., plans holding only life insurance and annuity contracts that meet certain requirements) EXCEPT: (LO 9.5) A) Fully insured plans are exempt from the actuarial certification requirement, which reduces administrative overhead. B) Fully insured plan cash values are not subject to income tax. C) Fully insured plans are exempt from the minimum funding standards. D) Fully insured plans are permitted a higher initial level of deductible plan contributions than are regular trusteed plans.
B) Fully insured plan cash values are not subject to income tax.
Which of the following are ways in which life insurance can be used to provide a gift to a charity? (LO 7.3) I. Purchasing a policy on the charitable organization II. Naming the charity as a beneficiary of a policy Question 64 options: A) I only B) II only C) Both I and II D) Neither I nor II
B) II only
In addition to having increased income, what is one reason why a couple might consider a pension maximization plan? (LO 9.9) Question 88 options: A) Lower costs B) Increased flexibility C) Increased, guaranteed security for the spouse D) No life insurance premiums
B) Increased flexibility
All of the following are advantages of group term life insurance EXCEPT (LO 7.1) Question 61 options: A) It provides insurance at standard rates for those who might otherwise be insurable at only an increased premium. B) It can be used as a standard investment option under the employer's 401(k) plan. C) It provides a death benefit to employees at a relatively low cost. D) It typically enables terminated employees to convert to individual policies without submitting evidence of insurability.
B) It can be used as a standard investment option under the employer's 401(k) plan.
Which of the following items are taxable under a life insurance contract? (LO 6.1) A) Interest paid on policy loans B) The economic benefit reportable income from term insurance in a qualified plan C) Premiums for accidental death benefits D) Premiums for disability income
B) The economic benefit reportable income from term insurance in a qualified plan
A revocable trust can help with all of the following EXCEPT (LO 8.1) Question 72 options: A) asset conservation. B) estate tax reduction. C) asset management. D) asset distribution.
B) estate tax reduction.
For estate tax purposes, life insurance (LO 8.3) Question 75 options: A) held by a revocable life insurance trust is includable in the trustee's estate. B) held by a revocable life insurance trust is includable in the grantor's estate. C) held by a third party and payable to a revocable life insurance trust is includable in the insured's estate. D) cannot be used to provide estate liquidity.
B) held by a revocable life insurance trust is includable in the grantor's estate.
When not sufficiently competent in a particular area, a CFP® professional must (LO 10.1) Question 94 options: A) conceal their incompetency. B) obtain the assistance of a competent professional. C) direct the client to third party sources of information. D) describe his recommendations to the best of his or her ability.
B) obtain the assistance of a competent professional.
Accelerated death benefit riders permit (LO 5.9) A) the death benefit to be paid within 30 days rather than 90 days after the date of death. B) payment of all or part of the death benefit before death under certain circumstances. C) premiums to be waived if the insured becomes disabled. D) another insured person to be added to the policy.
B) payment of all or part of the death benefit before death under certain circumstances.
A Section 162 plan is based on an Internal Revenue Code section that (LO 9.14) Question 90 options: A) permits an employer to deduct amounts paid for premiums on life insurance covering employees provided that the amounts of insurance and participation are offered on a nondiscriminatory basis. B) permits an employer to deduct amounts paid for premiums on life insurance covering selected employees provided that the amount is charged to the covered employee as a bonus (compensation). C) permits a key employee to exclude from income up to a certain limited amount paid by their employer as a premium for insurance on their life D) describes what are wages for purposes of the withholding tax.
B) permits an employer to deduct amounts paid for premiums on life insurance covering selected employees provided that the amount is charged to the covered employee as a bonus (compensation).
For families with young children or couples with a living standard that is relatively high for their income, the amount of insurance needed will be high. As a result, (LO 5.1) A) the priority should be to provide the most possible permanent insurance. B) the priority should be to provide adequate death protection. C) the couple should be encouraged to save for several years until they can afford to purchase permanent insurance. D) a combination of term and permanent insurance should always be recommended regardless of how little the client can afford.
B) the priority should be to provide adequate death protection.
A modified endowment contract is a life insurance policy that has failed (LO 7.5) Question 65 options: A) the test for life insurance. B) the seven-pay test. C) the transfer for value rule. D) the rule against perpetuities.
B) the seven-pay test.
The parties to a life insurance contract include all of the following, EXCEPT (LO 5.5) Question 44 options: A) the insurer. B) the state in which the insurer does business. C) the insured. D) the beneficiary.
B) the state in which the insurer does business.
Which of the following is (are) a reason why an employer might use life insurance in a qualified plan? (LO 9.5) I. To fund an executive nonqualified deferred compensation arrangement II. To provide for family protection or estate liquidity Question 85 options: A) I only B) II only C) Both I and II D) Neither I nor II
B) II only
A life insurance contract is primarily governed by which of the following? (LO 1.2) A) Federal law B) State law C) The law of large numbers D) British common law
B) State law
What is a key feature of variable life insurance? (LO 3.5) A)The dividends are guaranteed. B)There is no guaranteed minimum cash value. C)Death benefit claims are always paid in shares of company stock rather than in cash. D)It can be sold only by registered traders on the New York exchange.
B)There is no guaranteed minimum cash value.
The NAIC's new regulatory approach to measuring the risks associated with secondary guarantee policies is called (LO 3.10) A)actuarial realism. B)principle-based reserving. C)state-based risk quantification. D)enhanced fiduciary responsibilities.
B)principle-based reserving.
The human life value concept basically holds that the measure of the economic value of a life is (LO 1.6) Question 7 options: A)the highest single year earnings of the prior five years. B)the present value of the future earnings potential. C)the surviving spouse's total earnings to retirement. D)the taxable wage base adjusted for inflation.
B)the present value of the future earnings potential.
All of the following are current assumption whole life (CAWL) features that are similar to universal life (UL) EXCEPT (LO 2.9) A)unbundled structure. B)two-death benefit options. C)low or no front-end loads. D)some CAWL death benefits similar to UL option II.
B)two-death benefit options.
All of the following gifts of less than the client's entire interest in property would generate an income tax deduction EXCEPT (LO 7.3) Question 63 options: A) A charitable gift annuity B) A remainder interest in a qualified charitable remainder trust C) A charitable gift of the cash surrender value of a policy of which his son is the beneficiary D) An annuity or unitrust interest in a charitable lead trust
C) A charitable gift of the cash surrender value of a policy of which his son is the beneficiary
All of the following are reasons that corporate owned life insurance (COLI) is an attractive means of financing an employer's obligations under a nonqualified deferred compensation plan EXCEPT: (LO 9.8) Question 86 options: A) The build-up of value inside the policy is income-tax deferred B) Life insurance enables the employer to promise an immediate death benefit with no risk to corporate cash flow C) A plan funded with life insurance is exempt from all state and federal regulatory requirements D) Life insurance almost always provides the ability to recover costs--including the after-tax cost of the use of corporate dollars
C) A plan funded with life insurance is exempt from all state and federal regulatory requirements
All of the following would be a valid exchange under Section 1035 EXCEPT (LO 7.8) Question 67 options: A) A life insurance contract for an annuity contract B) An endowment contract for an annuity contract C) After 2009, an annuity contract for a life insurance contract D) After 2009, a life insurance contract for a qualified long-term care contract
C) After 2009, an annuity contract for a life insurance contract
The advantages of using a revocable life insurance trust include all EXCEPT: (LO 8.2) Question 71 options: A) All the client's assets can be poured over to the trust. B) A simple amendment to trust can achieve a redistribution of multiple insurance policies. C) Assets will be distributed by operation of contract. D) Insurance proceeds payable to trustee are immediately available for trustee's distributions.
C) Assets will be distributed by operation of contract.
Gifts of life insurance are favored for which of the following reasons? (LO 6.9) I. It may increase the donor's spendable income. II. The gift tax is relatively low. Question 58 options: A) I only B) II only C) Both I and II D) Neither I nor II
C) Both I and II
When not sufficiently competent in a particular area, a CFP® professional must (LO 10.1) I. obtain the assistance of a competent professional.II. limit or terminate the engagement. Question 96 options: A) I only B) II only C) Both I and II D) Neither I nor II
C) Both I and II
Which of the following are features of a Section 162 (Executive Bonus) plan? (LO 9.13) I. The employee is charged with a bonus in an amount equal to the premium.II. The employer will take an income tax deduction on the premium amount paid. Question 91 options: A) I only B) II only C) Both I and II D) Neither I nor II
C) Both I and II
Which of the following is true regarding life insurance valuation? (LO 6.6) Question 55 options: A) Because there has always been an organized market for policies, valuation is very easy to determine. B) The sale price of a policy to a related party will always be determinative of the actual value. C) For a newly issued policy, the fair market value is the cost of the policy. D) The terminal reserve value of a whole life policy will not be known until the value is needed.
C) For a newly issued policy, the fair market value is the cost of the policy.
To be considered life insurance for estate tax purposes, the death benefit must include all of the following elements EXCEPT (LO 6.7) Question 56 options: A) It must be payable unconditionally. B) It must have no effect on other legal liabilities or rights in connection with the insured's death. C) It must not be part of an aleatory contract. D) It must include risk shifting.
C) It must not be part of an aleatory contract.
All of the following are advantages of making a gift of life insurance to an irrevocable life insurance trust EXCEPT: (LO 8.4) Question 77 options: A) Sprinkle and spray powers can be used by an independent trustee. B) Beneficiaries can be given limited powers of appointment. C) Policy cash values can be borrowed from the trust if needed. D) The trust assets are generally protected from the claims of creditors.
C) Policy cash values can be borrowed from the trust if needed.
The advantages of a split-dollar arrangement include all of the following EXCEPT (LO 9.15) Question 92 options: A) Split-dollar arrangements are very cost effective to employers. B) There are virtually no ERISA reporting requirements. C) Premiums are not tax deductible at any time by either party. D) In most split dollar plans, the employer's outlay is fully secured at all times.
C) Premiums are not tax deductible at any time by either party.
Advantages of using life insurance funding in a buy/sell agreement include all of the following EXCEPT: (LO 9.2) Question 81 options: A) The event that creates the need for cash also results in the cash becoming available. B) The cost is relatively low. C) Premiums to keep the coverage in effect are deductible as a business expense. D) Survivors of the deceased shareholder can be freed from financial dependence on a business that has just lost a key employee.
C) Premiums to keep the coverage in effect are deductible as a business expense.
Which of the following statements is true regarding the legal aspects of a life insurance contract? (LO 5.5) Question 45 options: A) Because the insurance contract is the result of "give and take" negotiations, courts require strict compliance by both the policyowner and the insurance company. B) A statement by the applicant or the insured is considered a warranty. C) States require certain provisions in the contract to safeguard the interests of the policyowner and beneficiary. D) If the policyowner does not pay the premiums, the insurer can compel payment by filing suit against the policy owner.
C) States require certain provisions in the contract to safeguard the interests of the policyowner and beneficiary.
The advantages of key-employee life insurance include all of the following EXCEPT: (LO 9.3) Question 83 options: A) The value of owners business investment is stabilized. B) Instant capital is available at the death of a key employee. C) The premiums can be paid with after-tax dollars. D) There are no restrictions on how the proceeds are used.
C) The premiums can be paid with after-tax dollars.
What amount is potentially taxable as a gift of a life insurance policy to another individual? (LO 6.10) Question 59 options: A) The sum of premiums paid B) The interpolated terminal reserve C) The replacement cost of the policy D) The face value of the policy
C) The replacement cost of the policy
The transfer for value rule may not apply to a transfer in which of the following situations? (LO 6.3) Question 53 options: A) The sale of a policy by the insured to his daughter B) The sale of a policy by the insured to a life settlement company C) The sale of a policy by the insured to his spouse D) All of the above.
C) The sale of a policy by the insured to his spouse
The value of the survivor benefit from a qualified plan J&S annuity will be included in the taxable estate of the participant EXCEPT (LO 9.10) Question 87 options: A) if a trust is named as the beneficiary. B) if a child is named as the beneficiary. C) if the spouse is named as the beneficiary. D) if a trustee is named as the beneficiary.
C) if the spouse is named as the beneficiary.
For clients who are no longer facing potential estate tax liability, all of the following are potentially estate planning goals that can be addressed with life insurance EXCEPT (LO 10.4) Question 99 options: A) providing for the orderly transition of a business. B) ensuring that non-business heirs are treated fairly. C) providing a guaranteed increasing income to the surviving family. D) carrying out the charitable goals of the client.
C) providing a guaranteed increasing income to the surviving family.
To meet benefit nondiscrimination rules, a plan must provide all participants with benefits at least as great as those provided to which classification of employees? (LO 7.2) Question 62 options: A) Directors and officers B) Unionized employees C) Key employees D) Employees designated as highly compensated employees
C) Key employees
The "multiples-of-salary" method of estimating the amount of a family's insurance needs is (LO 1.5) A) a rule of thumb method that determines insurance need by looking the surviving spouse's earnings potential. B) a method that was repealed by overturning the DOMA legislation C) a method combining a simple rule of thumb method with elements of income replacement and needs analysis. D) a method that can be used only by individuals who are properly licensed with FINRA.
C) a method combining a simple rule of thumb method with elements of income replacement and needs analysis.
For a male aged 30, what is the probability percentage of having a disability which lasts at least 90 days before age 65? (LO 4.7) A)2 percent B)5 percent C)20 percent D)35 percent
C)20 percent
Which of the following problems could be caused by the flexibility offered by a universal life insurance policy? (LO 3.2) A)Increases in the death benefit within the first five policy years can cause the death benefit to become taxable income to the beneficiary. B)Increasing the premium will cause cash value growth to become taxable. C)A death benefit reduction may cause the policy to be classified as a modified endowment contract. D)The roll out of a split-dollar policy by a corporation will cause a transfer for value problem.
C)A death benefit reduction may cause the policy to be classified as a modified endowment contract.
Why do owners of a no-lapse universal life (NLUL) policy have little incentive to pay more than the stipulated premium amount? (LO 3.9) A)Because of the constantly evolving product design of No-Lapse Universal Life (NLUL) products B)Because of excessive term costs built into the policy C)Because of high loads charged on excess premiums D)Because the tax consequences of owning these products is similar to the consequences of owning a "traditional" universal product
C)Because of high loads charged on excess premiums
When comparing term policies, which of the following factors should be considered? (LO 2.1) I. To which age may coverage be converted to ordinary whole life? II. What is the schedule of future renewal premiums? A)I only B)II only C)Both I and II D)Neither I nor II
C)Both I and II
Which of the following are key factors to be weighed in choosing the best variable life or variable universal life policy? (LO 3.6) I. Policy loadings and expenses II. Suitability and variety of investment options A)I only B)II only C)Both I and II D)Neither I nor II
C)Both I and II
What is the upper limit called that the interest crediting rate formula will use to determine the amount to credit to cash values? (LO 3.7) A)Participation Rate B)Point-to-Point C)Cap Rate D)Shadow Account
C)Cap Rate
Which of the following is an advantage of adjustable life? (LO 2.8) A)Lifetime withdrawals of cash values are fully excluded from income tax. B)Interest paid on policy loans is deductible from capital gain on other investments. C)Policyowners have flexibility of selecting the schedule of premiums they will pay until they request a change in coverage. D)Adjustable life policies are not subject to surrender charges.
C)Policyowners have flexibility of selecting the schedule of premiums they will pay until they request a change in coverage.
All of the following are characteristics of a level-premium non-participating whole life insurance policy EXCEPT: (LO 2.3) A)In the early years of the policy, the amount of protection is lower relative to premium spent than term insurance. B)Federal income tax is deferred on cash value accumulations. C)There is a periodic adjustment of premium and death benefit. D)There is a schedule of guaranteed cash values.
C)There is a periodic adjustment of premium and death benefit.
All of the following items should be considered in relation to a joint life insurance policy EXCEPT (LO 4.3) A)guaranteed-purchase riders. B)guaranteed-purchase riders. C)an "own occupation" definition of disability. D)joint premium waiver.
C)an "own occupation" definition of disability.
A survivorship life plan that involves a greater proportion of term insurance than permanent insurance (LO 4.1) A)tends to be the most expensive. B)is based on unrealistic mortality assumptions. C)is sensitive to changes in yields, or interest rates. D)does not guarantee bonus credits or terminal dividends.
C)is sensitive to changes in yields, or interest rates.
Disability insurance includes all of the following types EXCEPT (LO 4.7) A)short-term disability insurance. B)supplemental disability income insurance. C)maternity leave insurance. D)business overhead expense disability insurance.
C)maternity leave insurance.
A conceptually sound approach to valuing key employees should (LO 1.7) A)account for increased productivity of other employees. B)discount for trends in the life cycle of the business. C)recognize that most, if not all, of the value of key employee contributions will be recovered over time through change or adapting. D)assume that a replacement key employee can be hired at a lower pay scale.
C)recognize that most, if not all, of the value of key employee contributions will be recovered over time through change or adapting.
All of the following are uses for survivorship life EXCEPT (LO 4.1) A)to provide estate liquidity at the second death of a married couple. B)to protect two-career families. C)to fund a buy-sell agreement. D)to help fund charitable bequests.
C)to fund a buy-sell agreement.
The "optional modes of settlement" include all of the following EXCEPT: (LO 5.6) A) Leave the proceeds with the insurer at interest. B) Accept the proceeds in fixed-year installments. C) Accept the proceeds in fixed-amount installments. D) Accept the proceeds as a life annuity for the life of the insured.
D) Accept the proceeds as a life annuity for the life of the insured.
The GST Tax may be triggered by which of the following events? (LO 6.11) Question 60 options: A) A direct gift to a grandchild B) The death of a grantor's child that leaves a grandchild as the last remaining beneficiary of a trust C) A distribution from a trust to a grandchild of the grantor D) All of the above
D) All of the above
Settlement options frequently include some combination of which the following? (LO 5.9) Question 50 options: A) Cash B) A fixed amount over time C) An amount over a fixed period D) All of the above.
D) All of the above.
The CFP Board's new Code and Standards require that the agent do all of the following EXCEPT: (LO 10.1) Question 93 options: A) Act with honesty, integrity, competence, and diligence. B) Avoid or disclose and manage conflicts of interest. C) Act in the client's best interests. D) Exercise due care in the recommendation of only variable products.
D) Exercise due care in the recommendation of only variable products.
The disadvantages of using a revocable life insurance trust include all EXCEPT: (LO 8.2) Question 73 options: A) It takes time and trouble to assign assets to the trust. B) The trustee's commissions can cost the trust 1.5 to 2 percent each year. C) The legal and accounting fees can be significant. D) Insurance proceeds payable to the trustee would be distributed at the trustees discretion and personal preference.
D) Insurance proceeds payable to the trustee would be distributed at the trustees discretion and personal preference.
Clients establish revocable trusts to accomplish which of the following objectives? (LO 8.1) I. Reduce income and estate taxes. II. Comply with state intestacy laws. Question 74 options: A) I only B) II only C) Both I and II D) Neither I nor II
D) Neither I nor II
Which of the following is a disadvantage to placing a life insurance policy inside an ILIT? (LO 8.5) Question 80 options: A) The donor can change a beneficiary's interest, but only with approval by the trustee. B) Once established, only the trustee can revoke an ILIT. C) Premium payments must be made only by the trust beneficiary. D) The donor must relinquish any incidents of ownership.
D) The donor must relinquish any incidents of ownership.
All of the following would be a consideration under a 1035 exchange EXCEPT (LO 7.7) Question 68 options: A) A higher rate of return is available on the new policy. B) The death benefit of the new product is higher with the new product. C) The new policy has lower premiums due to improved mortality tables and other factors. D) The old policy is a modified endowment contract (MEC) and the new policy will not be a MEC.
D) The old policy is a modified endowment contract (MEC) and the new policy will not be a MEC.
A gift of life insurance to an irrevocable life insurance trust can make all of the following results possible EXCEPT (LO 8.4) Question 76 options: A) state death taxes savings. B) federal estate tax savings. C) estate liquidity. D) ability to change the beneficiary of the life insurance policy.
D) ability to change the beneficiary of the life insurance policy.
A waiver-of-premium rider provides (LO 5.9) Question 48 options: A) that the policy will pay a greater death benefit if death is caused by accidental means. B) that the policyowner may switch from Option A to Option B at any time. C) that the policyowner may waive ERISA notification requirements. D) that the basic policy will continue in force if the insured becomes disabled.
D) that the basic policy will continue in force if the insured becomes disabled.
The lapse of a Crummey power is considered a taxable gift only to the extent that the value of the property exceeds (LO 8.5) Question 78 options: A) $5,000. B) the greater of 5 percent of the trust assets or the indexed amount of the gift tax exclusion. C) 5 percent of the trust's assets. D) the greater of $5,000 or 5 percent of the trust's assets.
D) the greater of $5,000 or 5 percent of the trust's assets.
A "viatical settlement" is (LO 7.9) Question 69 options: A) a provision under which the insurer makes age and time adjustments to the annuity rates under annuity settlement options. B) an option that permits a policyowner, if other than the insured, to change the beneficiary for up to 60 days following the death of the insured in a common disaster with the surviving owner. C) a provision in a universal life policy that reduces or eliminates the surrender charge for early termination if the current rate being credited to cash value falls below specified levels. D) the sale of a life insurance policy to a third party when the insured has a life threatening disease or illness.
D) the sale of a life insurance policy to a third party when the insured has a life threatening disease or illness.
The CFP Board's new Code and Standards do all of the following EXCEPT (LO 10.1) Question 95 options: A) to set forth the ethical standards for CFP® professionals. B) to replace the CFP Board's current Code of Ethics and Rules of Conduct. C) to replace the CFP Board's current Financial Planning Practice Standards and Terminology. D) to require professionals to act in the client's best interest only when selling variable products.
D) to require professionals to act in the client's best interest only when selling variable products.
Life insurance can meet which of the following client needs? (LO 1.1) Question 1 options: A)Pay debts. B) Provide income for surviving family members. C) Provide income for surviving family members. D) All of the above.
D) All of the above
All of the items listed below are advantages of adjustable life insurance EXCEPT: (LO 2.8) A)The policyowner may change the face amount of coverage. B)Cash value earnings accumulate on a tax deferred basis. C)The policy cash values are not subject to market fluctuations. D)Lifetime withdrawals of cash values are exempt from federal estate tax.
D)Lifetime withdrawals of cash values are exempt from federal estate tax.
All of the following features represents an advantage of an annuity over a mutual fund investment EXCEPT: (LO 4.6) A)If annuitized, distributions are taxed under IRC Section 72. B)A variety of contractual guarantees may be available. C)Tax deferred growth D)Lower acquisition fees
D)Lower acquisition fees
Which of the following statements is true regarding CAWL insurance? (LO 2.9) A)The amount in the "accumulation account" is based on the performance of investments selected by the policy holder. B)Most current assumption policies charge relatively high front-end loads but have no surrender charges. C)The amount of premiums remains fixed for the term of the contract. D)The insurer promises to credit at least a minimum guaranteed rate of interest.
D)The insurer promises to credit at least a minimum guaranteed rate of interest.
All of the following are disadvantages of first-to-die life insurance EXCEPT: (LO 4.3) A)Base policy coverage ceases upon the first death. B)The cost of a JL policy is greater than the cost of a single life policy with the same face amount. C)Failure to adhere to certain guidelines can have adverse tax consequences. D)The need for redundant coverage may be eliminated in the business market.
D)The need for redundant coverage may be eliminated in the business market.
All of the following statements regarding universal life insurance are correct, EXCEPT: (LO 3.1) A)The policyowner can easily track the policy's different elements. B)It is generally best suited to long term coverage needs. C)If the policyowner skips a premium payment the policy will not lapse. D)The policy is not susceptible to inadvertently becoming a modified endowment contract.
D)The policy is not susceptible to inadvertently becoming a modified endowment contract.
A single-premium life insurance policy issued before June 21, 1988, is "grandfathered"; that is, it is not subject to the MEC (Modified Endowment Contract) tax rules. However, it can lose this tax status if there is (LO 2.7) A)a death benefit increase inherent in the policy design due to crediting of interest or other earnings. B)a death benefit increase needed to keep the relationship between the death benefit and cash values required to satisfy the tax code definition of life insurance. C)a cost-of-living increase based on a broad based index such as the Consumer Price Index. D)an exchange of the policy for another policy.
D)an exchange of the policy for another policy.
All of the following are appropriate uses of single premium whole life insurance EXCEPT (LO 2.6) A)when maximum tax-deferred cash buildup in conjunction with life insurance is desired. B)when the objective is to prefund a specified minimum death benefit for a specific purpose. C)as a vehicle for gifts. D)as a good short-term tax-deferred investment.
D)as a good short-term tax-deferred investment.
Under ATRA, the unified gift and estate tax credit is now (LO 10.3) Question 97 options: A) scheduled to be eliminated in 2026. B) fixed at a certain amount. C) depreciated based on the type of property in the estate. D) automatically indexed to inflation.
D)automatically indexed to inflation.
The income replacement approach to determining a family's insurance needs is based primarily on (LO 1.6) A)the annual adjustment to the Social Security taxable wage base. B)ERISA regulations issued by the Department of Labor. C)the current balance in the deceased wage earners qualified plan account. D)the human life value concept.
D)the human life value concept.
Which aspect of life insurance planning has changed now that a client's same-sex marriage is recognized by their state of residence? (LO 10.5) Question 100 options: A) Insurable interests B) Advanced medical directives C) Probate administrative costs D) Projected federal estate tax liability
A) Insurable interests
Second-to-die insurance requires (LO 10.5) Question 98 options: A) an insurable interest between the two parties to the contract. B) a split-dollar plan. C) the use of an actuary to calculate the projected benefits. D) None of the above.
A) an insurable interest between the two parties to the contract.
All of the following items are treated as income-first when distributed from a modified endowment contract EXCEPT (LO 7.5) Question 66 options: A) dividends retained by the insurer to pay premiums or other consideration for the contract B) cash dividends C) policy loans to pay premiums and for all other purposes D) withdrawals
A) dividends retained by the insurer to pay premiums or other consideration for the contract
Most viatical settlements payments are (LO 7.9) Question 70 options: A) excluded from income because they are deemed to be paid by reason of the death of the insured. B) excluded from income only in the second year after the terminally ill individual actually dies. C) deductible as medical expenses under Code Section 217. D) treated as an income tax credit that is completely phased out after $225,000 of income for a joint return.
A) excluded from income because they are deemed to be paid by reason of the death of the insured.
What is includible in the deceased owner's estate when there is an insurance policy on the life of another person? (LO 6.8) Question 57 options: A) The face value of the life insurance policy B) Replacement cost of the life insurance policy C) The sum of premiums paid D) Nothing is includible.
B) Replacement cost of the life insurance policy
The two policy comparison methods that compute the rates of return, or the prices of protection, for all years or any subset of years the policies may be in force were developed by whom? (LO 5.3) A) Linton and Baldwin B) The National Association of Insurance Commissioners C) Joseph Belth D) A.M. Best
C) Joseph Belth
Disadvantages of term insurance include all of the following EXCEPT: (LO 2.1) A)There are no tax-free automatic savings. B)Premiums increase with age. C)There are no loan values. D)Proceeds are not part of a probated estate unless the estate is a named beneficiary.
D)Proceeds are not part of a probated estate unless the estate is a named beneficiary.
Which of the following types of life insurance requires the greatest amount of annual premium for the same amount of death benefit? (LO 2.5) A) First-to-die whole life insurance B) Level-premium participating whole life insurance C)Limited-pay whole life insurance D)Single-premium whole life insurance
D)Single-premium whole life insurance