Markets and Social Security Ch 6
Group life insures a group of people under a _____________.
A Certificate of insurance B Card of insurance C Number of policies D Single contract D - Group life insures a group of people under a single contract.
All of the following are correct regarding Key Person Insurance, except:
A The policy is source of funds to replace any lost revenue due to the death of the employee B The policy primarily insures the employee's retirement plan C The policy is owned by the employer D The policy can be term or permanent B - A Key Person Plan is intended to help a company recover from the loss of a key employee until a replacement is found.
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. A $100,000 B $50,000 C $75,000 D $150,000
A - 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.
An advantage of key person life insurance is to: A Provide the owner of the policy with funds to recruit and train a replacement employee upon the death of an employee who contributes substantially to the success of a company B Provide the family of the deceased employee with up to ten years of the employee's lost future income C Provide life insurance benefits to all eligible employees and their dependents D Protect a partnership against the death of a partner by providing benefits to buyout a deceased partner's share of the business
A - The death of a key person can negatively impact business operations. The owner of a key person policy is the company and it may use the death benefit proceeds to cover the expense of recruiting, hiring, and training a replacement, which may take months to accomplish.
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? A 100% B 50% C 25% D 75%
A - 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 ______. A 16/60 B 18/65 C 18/60 D 16/62
A - When the youngest child reaches age 16, the widow's/widower's blackout period begins. It continues until a surviving (non-remarried) spouse reaches age 60.
________ 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. A Currently B Not C Fully D Partially
A- Currently Insured under Social Security means 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.
The Social Security Survivor Benefit is based on the Primary Insurance Amount of the: A Deceased B Survivor C Recipient D Beneficiary
A- The Social Security Survivor Benefit is based on the Primary Insurance Amount of the decease
Group conversion
Allows an employee who loses eligibility for enrollment in a group plan to get coverage under an individual plan without evidence of insurability
Which of the following is a characteristic of a contributory plan? A Part-time employees must be eligible to participate B Eligible employees pay a portion of the premium C Employers must enroll 100% of eligible employees D Dependents of eligible employees must pay 75% of the premium
B - In a contributory group insurance plan, eligible employees pay a portion of the premium. Part-time employees are usually not eligible. Dependents of an eligible employee do pay a required percentage of premium, the amount varies as determined by the employer. A contributory plan requires at least 75% participation of eligible employees. Noncontributory group plans require 100% participation.
A key person is typically all of the following, except: A Respected by customers, creditors, suppliers, or vendors B Not directly involved in sales, production, or service C Part of the management team D More highly paid
B - Key persons are employees whose contributions have a significant impact on the revenue and profitability of the company, especially in small businesses. They are typically: part of the management team, more highly paid, respected by customers, creditors, suppliers, and vendors, and have direct responsibilities for sales, production, or service.
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. A 40 B 10 C 30 D 20
B - To be fully insured for Social Security, the requirement is to accumulate 40 credits or 10 years of work paying social security taxes. A maximum of four credits may be earned in one calendar year of employment.
A Buy-Sell Agreement: A Provides a business with funds in the event of the death of a key person who is not an owner B Specifies the conditions and requirements that are necessary to sell the business to a third party if a business owner dies unexpectedly C Assures the continuation of the business by providing benefits to the surviving business partners to buyout a business partner's interest in the event one of them dies unexpectedly D Describes which relatives of a business owner have the right to purchase that person's interest in the business upon death
C - A Buy-Sell agreement is funded with life insurance and is designed to protect the business and assure continuation by providing benefits to the surviving business partners to buy out the deceased partner share of the business.
In an employer-sponsored group life insurance plan, the employee has control over which of the following? A Type of policy B Amount of benefits C Naming a beneficiary D Premium payment option
C - In an employer-sponsored group life insurance plan, the employer determines the type of coverage, amount of coverage, and premium options, but naming the beneficiary is the employee's right.
All are correct statements concerning noncontributory group life, except: A If employer-sponsored, an employee must work a minimum number of hours per week to be eligible B Only the plan sponsor is responsible for paying premiums C Premiums are calculated by underwriting each individual in the group D The Conversion Period is 31 days
C - 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.
Which of the following types of buy-sell agreements provides for a business to purchase a life insurance policy on each business partner? A Key Employee Plan B Stock Redemption Agreement C Entity Plan D Cross Purchase Plan
C - The Entity Buy Sell Plan is a contract in which the business entity buys a life insurance policy on each of the owners. The Cross Purchase Plan requires each business partner to purchase a policy on the other business partners. The Stock Redemption Agreement is not for business partners, but for shareholders in a closely held corporation. The Key Employee Plan is not a buy-sell agreement.
Social Security monthly retirement benefits are determined using a formula that calculates which of the following? A COLA B FRA C PIA D FICA
C - To be eligible for SS all benefits and be considered fully insured, a worker must have earned 40 credits.
Which statement regarding Social Security benefits is FALSE? A Spouses of fully insured workers can receive benefits as early as age 62 B Dependent children of a deceased worker can receive survivor's benefits until age 18 (19 if still in school) C Widows and widowers cannot receive survivor's benefits before age 62 D Fully insured workers can receive benefits as early as age 62
C - Widows/widowers of a fully insured deceased worker may begin receiving benefits at age 60.
Master policy
Contract issued to plan sponsor
With a Noncontributory Group Life Plan, what percentage of the employer's employees must participate? A 75% B 90% C 50% D 100%
D - 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.
If enrolled in an accredited elementary or secondary school, a covered child can continue receiving Survivor Benefits up to what age? A 21 B 17 C 20 D 19
D - Children may continue receiving survivor benefits up to age 19 if enrolled in an accredited elementary or secondary school.
As part of Social Security benefits, a one-time payment of $_______ may be made paid to a surviving spouse after a taxpayer's death. A The PIA B 40 quarters C 6 quarters D 255
D - Death benefits paid to the family of a covered worker is a one-time payment of $255 made after the taxpayer's death. This benefit may be paid to a surviving spouse or minor children if they meet certain requirements.
In an employer-sponsored group life insurance plan, the employee's description of benefits is referred to as the: A Master Policy B Claim form C Change of beneficiary form D Certificate of Insurance
D - The employees in a group life plan receive a certificate of insurance that describes the benefit, identifies the insurance company and policy and certificate numbers, and provides information about changing beneficiaries or filing a claim.
Contributory plan
Employees pay a portion of the premium and at least 75% of eligible employees must participate
Noncontributory plan
Employer pays the entire premium and 100% of eligible employees must participate
Natural group
Formed for a purpose other than for purchasing group insurance
Fully Insured -
Fully insured status requires an individual to have earned 40 quarter credits, or approximately 10 years of employment. A fully insured worker has permanent coverage under Social Security and cannot lose this status. Benefits that may be received monthly under a fully insured status are: -Retirement starting at age 62, or older -Spousal retirement at age 62 or older -Widows and widowers can begin receiving Social Security benefits at age 60
Late enrollees
Individuals who do not join the group plan when eligible and are required to provide evidence of insurability or wait until the next open enrollment period
Certificate of insuranc
Issued to each participant describing the benefits, identifying the insurance company and policy number
Open enrollment
Time period employees can join the group plan and coverage is guaranteed without evidence of insurability
Annual renewable term
Type of insurance written for group plans
Entity Plan
Under this plan, a business entity enters into an agreement in which it is obligated to purchase the deceased owner's interest. The entity typically buys life insurance policies on each of the owners.
Cross Purchase Plan
Used when the partners of a business purchase life insurance on each other. At the death of one of the partners, policy proceeds are used to purchase that person's interest in the business from his/her heirs. Each partner owns insurance on each of the other partners.
Third-Party Ownership
When a policy is owned by a person other than the insured Examples: -A husband owns a policy on a wife -A parent owns a policy on one of their children -A business owns a policy on a key employee -A business partner owns a policy on another business partner
Key persons
are employees whose contributions have a significant impact on the revenue and profitability of the company, especially in small businesses. -Part of the management team -More highly paid -Respected by customers, creditors, suppliers, and vendors -Have direct responsibilities for sales, production, or service Either term or permanent coverage can be used to fund the plan.
