CA LIFE STATE PRACTICE EXAM PT 2(FROM EXAM FX ONLINE TEST)

When the owner of a $250,000 life insurance policy died, the beneficiary decided to leave the proceeds of the policy with the insurance company and selected the Interest Settlement Option. If at the time of withdrawal the interest paid was $11,000, the beneficiary would be required to pay income tax on

$11,000.

A policyowner surrendered a non-participating whole life policy for $10,000 cash value. The policyowner had at that time paid premiums totaling $8,000. The federal income tax effect would be

$2,000 taxable, $8,000 tax free.

An insured decides to surrender his Whole Life insurance policy which he had purchased 30 years ago. He had paid annual premiums of $500 while the policy was in force (which added up to $15,000). When he surrendered the policy, the cash surrender value was $18,000. What part of the surrender value would be income taxable?

$3,000

All of the following could own group life insurance EXCEPT

**a. A group needing low cost life insurance. b. An employer group. c. An alumni group. d. A debtor group

Under HIPAA, which of the following is INCORRECT regarding eligibility requirements for conversion to an individual policy?

**a. An individual who was previously covered by group health insurance for 6 months is eligible. b. An individual who was previously covered by group health insurance is eligible. c. An individual who doesn't qualify for Medicare may be eligible. d. The gap of coverage for eligibility is a period of 63 or less days.

All of the following statements concerning an employer sponsored non-qualified retirement plan are true EXCEPT

**a. The employer can receive a current tax deduction for any contributions made to the plan. b. The plan is a legal method of accumulating money for retirement needs. c. The plan can discriminate as to who may participate. d. The plan is not approved for favorable tax treatment by the IRS.

Under a seven-year vesting schedule, to what percentage of the employer's contributions would the employee be entitled at the end of the seven-year period?

100%

Upon reaching the end of a vesting schedule, what percent of employer contributions to a qualified retirement plan are vested to the employee?

100%

What percentage of a company's employees must take part in a non-contributory group life plan?

100%

Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT?

100% participation of members is required in noncontributory plans.

Under HIPAA, how many months of creditable coverage must a new employee have earned to not have a pre-existing condition exclusion in the new plan?

12 months

Within how many days of termination of employment must an employer give notice of the employee's right to convert the group policy to an individual policy?

15 days

To be eligible under HIPAA regulations, for how long should an individual converting to an individual health plan have been covered under the previous group plan?

18 months

When Barkley started work for the Ace Company, he was told he could participate in a Simplified Employee Pension Plan. This plan is

A defined contribution plan for a small business.

All of the following could own group life insurance EXCEPT

A group needing low cost life insurance.

If there is a material change in an MEC contract,

A new 7-pay test is required.

Richard is the Vice-President of a major toy company. The President of the company has offered him a special individual annuity plan that is unavailable to lower-echelon employees. This plan would involve using before-tax corporate dollars to fund, and it does not meet government approval standards. This annuity plan is

A non-qualified annuity plan.

What are the members of the Medical Information Bureau required to report?

Adverse medical information about individuals

The insurer can require the insured to visit a different physician at the insurer's expense.

An individual who was previously covered by group health insurance for 6 months is eligible

Andrea wants to apply for an individual life insurance policy. She has a nearly flawless health history and wants only limited coverage. Which type of information is the least that would probably be required?

Application for insurance

All of the following are requirements for retirement plans EXCEPT

Being contributory

Which of the following is taxable as income?

Benefits paid to the employee at retirement.

All of the following employees may use a 403(b) plan (TSA) for their retirement EXCEPT

CEO of private corporation.

Which of the following would qualify as a Section 1035 exchange?

Cash Value Life Insurance Policy to a Cash Value Life Insurance Policy

Which of the following does NOT describe a defined benefit plan?

Contributions are tied to the company profits.

Which of the following would be tax-free?

Death benefit received in a lump-sum settlement

Which of the following is true regarding dividend-related taxation?

Dividends are not taxable.

According to the requirements for employee benefit plans, which of the following is NOT true?

Employer can be the beneficiary of an employee's group life insurance plan.

Insurer X charges the premium from its insured customers, passing on operating expenses for the company. The operating expenses plus the premium equals the "gross" premium. What is another name for the operating costs for Insurer X?

Expense loading

The factor added to the net premium to cover the costs of the insurer in obtaining and maintaining the business is called

Expenses.

When an employee terminates coverage under a group insurance policy, coverage continues in force

For 31 days.

If taken as a lump sum, life insurance proceeds to beneficiaries are passed

Free of federal income taxation.

Life insurance death proceeds are

Generally not taxed as income.

In life insurance policies, cash value increases

Grow tax deferred.

Insurers like to keep the same clients for as long as possible. For insurers, a high retention rate has all of the following advantages EXCEPT

Guaranteed annual returns.

A individual delays buying life insurance for himself. As time passes, which factor is likely to raise the cost of his life insurance when he finally purchases it?

He is 3 years older than he was when he first considered buying insurance.

Which of the following is true about a defined benefit plan?

High-salaried employees with only a few years until retirement would benefit the most.

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?

Interest only

What is the main purpose of the Seven-pay Test?

It determines if the insurance policy is an MEC.

If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?

It is only taxable if the cash value exceeds the amount paid for premiums.

An insurer invests the money it receives from premiums paid by its insureds. Which of the following is true regarding the interest earned on these investments?

It is used to lower premiums.

Which of the following best describes the MIB?

It's a nonprofit organization that maintains underwriting information on applicants for life and health insurance.

Norma Jean is joining a group insurance plan. In order to avoid proving insurability, what must Norma Jean do

Join during the enrollment period

Norma Jean is joining a group insurance plan. In order to avoid proving insurability, what must Norma Jean do?

Join during the enrollment period

Which of the following is an IRS qualified retirement program for the self-employed?

Keogh

In a single employer group plan, what is the name of the policy issued to the employer?

Master contract

The likelihood of sickness is

Morbidity.

An underwriter for a life insurance company is examining an applicant's health history and demographic information. Which tool can be used to best determine the client's insurability?

Mortality Table

What is a primary difference between an IRA and an SEP?

Much more money can be contributed to a SEP.

Death benefits payable to a beneficiary under a life insurance policy are generally

Not subject to income taxation by the Federal Government.

The cash value under a MEC accumulates

On a tax-deferred basis.

The Medical Information Bureau (MIB) helps insurers compare medical information they have collected on a potential insured with the information received from

Other insurers.

An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called?

Profit sharing plan

What method do insurers use to protect themselves against catastrophic losses?

Reinsurance

When an insurance company agrees to automatically assume a portion of the risk written by another insurance company, it is known as a(n)

Reinsurance treaty.

If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may

Require evidence of insurability.

An insurance company is trying to grow while keeping its running costs low and keeping its customer base satisfied. On which of the following tasks should it focus?

Retaining its current clients

What part of the Internal Revenue Code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences?

Section 1035 Policy Exchange

An immediate annuity purchased with the face amount at death or with the cash value at surrender can be referred as which one of the following?

Settlement option

An employee has group life insurance through her employer. After five years, she decides to leave the company and work independently. How can she obtain an individual policy?

She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan.

Which of the following is NOT a potential advantage of a fully-funded retirement pension plan?

The Employer manages the investments for the employees, thus picking investments best suited to the employees' risk tolerances.

In a defined contribution plan,

The contribution is known and the benefit is unknown.

How are funds contributed to a tax-sheltered annuity treated for taxation?

The contributions are not included as income for the employee, but are taxable upon distribution.

Which of the following are generally not considered when underwriting group insurance?

The group's medical history

Bob applies for an insurance policy and, because of his medical history, is required to submit an attending physician's statement. He receives the evaluation, and the report is submitted. The underwriting department still has further questions but is unable to get further information from the physician. What will the insurer most likely do?

The insurer can require the insured to visit a different physician at the insurer's expense.

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen?

The insurer will pay the full Death Benefit to the beneficiary.

Which of the following describes cost basis in an annuity?

The money that has been taxed before being paid into an annuity

All of the following would be eligible to establish a Keogh retirement plan EXCEPT

The president and employee of one's family's corporation.

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated?

Those who have been insured under the plan for at least 5 years

What is the advantage of using the Interest Adjusted Cost method for comparing the cost of life insurance policie

Time value of money is taken into consideration.

What is the advantage of using the Interest Adjusted Cost method for comparing the cost of life insurance policies?

Time value of money is taken into consideration.

Vision, Inc. employs 500 people. The company offers group life insurance to its employees after 90 days of service. Who is considered the policyholder of the life insurance policies Vision, Inc. offers?

Vision, Inc.

If a life insurance policy is deemed to be a Modified Endowment Contract, the policy loans

Will be taxed on a last-in-first-out basis.

Which of the following statements is INCORRECT with regard to a 1035 exchange?

a. A whole life insurance policy can be exchanged for a Universal life insurance policy. b. On a trustee-to-trustee exchange where the policyowner exchanges a life insurance policy for another life insurance policy on the same life, there will be no income tax on the transaction. c. A life insurance policy can be exchanged for an annuity. **d. A whole life insurance policy can be exchanged for a term insurance policy.

All of the following would be different between qualified and non-qualified retirement plans EXCEPT

a. IRS approval requirements **b. Taxation on accumulation c. Taxation of withdrawals d. Taxation of contributions

All of the following are characteristics of group life insurance, EXCEPT

a. Individuals covered under the policy receive a certificate of insurance. b. Certificate holders may convert coverage to an individual policy without evidence of insurability. **c. Premiums are determined by the age, sex and occupation of each individual certificate holder. d. Amount of coverage is determined according to nondiscriminatory rules.

All of the following are disadvantages of using Traditional Net Cost method for comparing the cost of life insurance policies EXCEPT

a. It assumes the policy will be kept for the number of years used in calculation. **b. Dividends are not considered in determining the cost of the policy. c. It does not consider the time value of money. d. The dividends and cash values are projections only.

Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT?

a. SEPs offer ease of plan administration with minimal reporting requirements. **b. SEPs limit participation to members of closely held corporations. c. SEPs allow the employer to make annual tax deductible contributions up to 25% of an employee's earned income, not to exceed $49,000. d. SEPs have a higher tax deductible contribution limit than an IRA.

Which of the following is INCORRECT regarding HIPAA's creditable coverage?

a. The 12 months of creditable coverage may come from different employers as long as the total is 12 months of coverage, with no gaps over 63 days. b. There would be no pre-existing conditions limitation under a new plan as long as more than 12 months of coverage existed immediately prior to joining the new group. c. When a person leaves employment, they will be issued a certificate of creditable coverage for the number of months they were covered under the employer's group health insurance plan. **d. The 12 months of creditable coverage must all come from the same employer.

In a group life insurance policy, the employer may select all of the following EXCEPT

a. The amount of insurance. b. The premium payor. **c. The beneficiary. d. The type of insurance.