Insurance - Chapter 6

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

$100,000 - If ABC Enterprises is worth $300,000 and each shareholder is an equal owner of the company, then the company would buy three $100,000 life insurance policies, one on the life of each owner. The policy would be owned by the company. The company would be named as the beneficiary. At death of one of the owners, the company would have the funds necessary to buy the deceased's stock in the company.

Social Security pays an eligible surviving spouse (or minor child) a one-time benefit upon the death of a covered worker. Which of the following is the amount of that benefit?

$255

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

$50,000 - If there are 3 partners in a company valued at $300,000, then each would have a $100,000 interest in the company. Each partner would purchase a policy on the other partners, providing for a total of 6 policies (3x2 = 6). Each policy would be valued at $50,000 (6 x $50,000 =$300,000).

To be fully insured for Social Security, generally a person must have worked and paid into the Social Security system for a minimum of ______ years.

10

With a Noncontributory Group Life Plan, what percentage of the employer's employees must participate?

100% - A Noncontributory Group Life Plan is one in which the participant does not pay premiums. State law requires that 100% of eligible employees are covered. The insurer can be certain that all employees will enroll and it will not be subject to adverse selection.

XYZ Corporation has 59 employees. The company decides to purchase a group life policy and will pay the total premium. What percentage of employees must participate under this arrangement?

100% - The question describes a Noncontributory Plan as the employer (XYZ Corporation) is paying the entire premium, thus 100% participation (all 59 employees) is required.

The Social Security blackout period for surviving spouses begins when the youngest child reaches age ______, and ends when the surviving spouse reaches age ______.

16/60

Generally, children receive Social Security Survivor Benefits until age ________.

18 - Children generally receive benefits up to age 18. They may receive benefits up to age 19 only if they are still in school.

The Social Security Survivor Benefit covers children to age ______ and may continue coverage to age ______ if enrolled in an accredited elementary or secondary school.

18/19

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

6

A Social Security retirement benefit recipient will receive the greatest benefit starting at which of the following ages?

65

T has some heart health issues, but needs some additional life insurance coverage. What options should T consider?

A group life insurance plan - For those who don't qualify for an individual policy because of age or health reasons, group life coverage might be a good option.

All of the following are examples of third-party ownership, except:

A mother buys a policy for herself and names her son as beneficiary

To be included in an employer-sponsored group plan, an employee must be employed full time by any of the following, except:

A silent partner

Which of the following concerning Noncontributory Group Life insurance is FALSE?

An employer pays 75% of the premium - they pay 100%

Group Life Insurance is usually written as:

Annual Renewable Term - Group Insurance is usually written as annual renewable term so that, based on a number of factors, the insurer may change the rate or the employer may change the plan.

With a Contributory Group Life Plan, what percentage of the employees must participate?

At least 75%

Regarding Social Security survivor benefits, when the youngest child reaches age 16, the widow's/widower's _________ period begins and continues until the surviving (non-remarried) spouse reaches age 60.

Blackout

All of the following are typically what key employee life insurance proceeds are used for, except to:

Close down the business - A key person life insurance policy provides the necessary funds to recruit, hire, and train a replacement employee, restore lost profits, and reassure customers that business operations will continue.

Who is generally named as the beneficiary when a credit life insurance policy is issued?

Creditor - When a credit life insurance policy is issued, the creditor is normally named as the beneficiary in order to be able to recover the outstanding debt when the insured dies.

The arrangement under a Buy-Sell Agreement in which each party purchases insurance on the life of his/her partner(s) is called a:

Cross Purchase Plan

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

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

Credit Life insurance is usually what type?

Decreasing Term

Under Social Security, a worker needs 10 years of work to be considered ________ insured.

Fully

In which market are Certificates of Insurance issued to insured individuals?

Group

All of the following are characteristics of Group Life Insurance, except:

Group is typically written utilizing Permanent Insurance - Group Insurance is typically written on a Renewable Term basis. However, some insurers do make Permanent Insurance available.

Proceeds from a buy-sell agreement are received ___________.

Income tax free - The premiums payable for a buy-sell agreement are not tax deductible, therefore the benefit is received income tax free.

In those instances in which the death of a valued employee could cause financial hardship for a company, the company might acquire additional funds through which type of coverage?

Key Person - The business would likely purchase a Key Person (Key Employee) Policy on the life of the valued employee to offset the expenses and financial losses due to the death of that employee.

A buy-sell agreement can be used in all of the following businesses, except:

Large publicly held corporations - A buy-sell agreement may be used with a sole proprietorship, a partnership, or with stockholders of a closed corporation.

Buy-sell agreement life insurance premiums are:

Not deductible and proceeds are income tax free

A key person is typically all of the following, except:

Not directly involved in sales, production, or service

All of the following regarding credit life are true, except:

Only the creditor pays credit life premiums - The premium might be paid by the creditor or the debtor.

The Social Security Survivor Benefit is computed using which of the following?

PIA - The Social Security Survivor Benefit is based on the worker's Primary Insurance Amount (PIA), which is determined by cumulative earnings.

After the blackout period has ended, the widow or widower may receive a Social Security income benefit based on the ___________.

PIA of the deceased spouse

All are correct statements concerning noncontributory group life, except:

Premiums are calculated by underwriting each individual in the group - Since no proof of insurability is required on the part of the plan participants, the insurer looks at the group collectively, factoring a number of variables.

All of the following are correct regarding Key Employee Life Insurance, except:

Premiums are deducted from the employee's salary - Key Employee Life Insurance is designed to indemnify a company against the loss of a key employee. The employer has an insurable interest in the key employee, and is the owner, premium payor and beneficiary. The premiums are not tax deductible, and the death benefit is federal income tax free.

To help protect against experiencing immediate claims, group plans have a(n) _______ period set up by the group sponsor.

Probationary

____________ individuals pay a FICA tax amount equal to the total of an employer and employee payment.

Self-employed

Lorraine's position has been terminated, and she is interested in converting her group life coverage to an individual policy. In the process, she will find all of the following to be TRUE, except:

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

Which of the following statements is FALSE regarding Credit Life Insurance?

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

All of the following are parties to a life insurance contract, except:

The beneficiary

Which of the following is true in regard to an Entity Purchase Plan?

The business enters into an agreement to purchase the deceased's interest in the business - An entity purchase plan is one in which life insurance provides the funds necessary to buy out the business interest of the deceased.

An employee who is covered under an employer group life insurance plan may assume all of the following are TRUE of the opportunity of conversion, except:

The employee chooses which type of insurance to convert to - The greatest advantage of group life conversion is that evidence of insurability is not required. The insurance company requires conversion to a permanent policy, which will be more costly.

When an insurer wishes to implement changes to a group life policy, whom must it notify?

The group sponsor

Which of the following is the least important when it comes to determining the cost of the group life insurance plan?

The health of each member of the group

In terms of planning out a company's budget, what must be taken into consideration if a group life insurance plan is in place?

The insurer can increase the premium at renewal - An insurer providing a group life insurance plan can change the rate that it charges. That is important to know for a company's budgeting purposes.

A Credit Life Policy will be cancelled if:

The loan is paid off or refinanced

All of the following are correct regarding Key Person Insurance, except:

The policy primarily insures the employee's retirement plan

Group life insurance is a contract between what parties?

The sponsor and the insurer

Which of the following is a major risk to an employee covered under an employer's group life insurance plan?

The sponsor can elect to discontinue the plan

All of the following are generally the main business uses of life insurance, except:

To provide funds for the deceased's heirs