Chapter 6 - Markets and Social Security

Industrial insurance is also known as: A Ordinary B Surplus lines C Home service D Group

C Home service Industrial insurance is also known as Home Service...often for low-income neighborhoods; helps cover funeral costs

A Buy-Sell Agreement A 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 B Provides the business with funds in the event of the death of a key person who is not an owner C Describes which relatives of a business owner have the right to purchase that person's interest in the business D Specifies the conditions and requirements that are necessary to sell the business to a third party if a business owner dies unexpectedly

A 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 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.

After the blackout period has ended, the widow or widower may receive a Social Security income benefit based on the ___________. A PIA of the deceased spouse B FICA taxes that are paid by the employees C FICA taxes that are paid by employers D Social Security Death Benefit

A PIA of the deceased spouse

Industrial life insurance is typically sold in face amounts of : A $5,000 multiples B $1,000 or less C Up to $50,000 D $10,000 to $20,000

B $1,000 or less Industrial insurance is typically marketed to low-income persons. Face amounts are available in $1,000 increments (or less). Some states limit the amount of coverage on any one life to no more than $10,000. Premiums are most often paid in cash to an agent on a weekly or monthly basis.

The Master Policy for a group life plan goes to the employer. What does a participating employee receive? A Change of beneficiary form B Certificate of Insurance C Copy of the Master Policy D Claim form package

B Certificate of Insurance 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.

Which of the following is a characteristic of a contributory plan? A Employers must enroll 100% of eligible employees B Eligible employees pay a portion of the premium C Part-time employees must be eligible to participate D Dependents of eligible employees must pay 75% of the premium

B Eligible employees pay a portion of the premium 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.

For those individuals who have health issues, which of the following would be an insurance plan to consider? A Decreasing Term B Group C Variable Universal Life D Joint Life

B Group If an individual has health issues, then a group insurance plan could be a valuable consideration. It offers the opportunity to obtain coverage without providing evidence of insurability.

Individuals who do not enroll during the initial enrollment period are considered ___________ enrollees. A Restricted B Late C Terminated D Prohibited

B Late ...must provide evidence of insurability unless they wait until the next open enrollment period.

All of the following are advantages of having a Buy-Sell Agreement in place, except: A The business value is pre-agreed upon B Premiums are tax-deductible C It is an immediate and automatic method of transferring the deceased's interest D The agreement is legally enforceable

B Premiums are tax-deductible

To help protect against experiencing immediate claims, group plans have a(n) _______ period set up by the group sponsor. A Conversion B Probationary C Open enrollment D Elimination

B Probationary

Which of the following statements is FALSE regarding Credit Life Insurance? A The creditor must apply the insurance proceeds to the discharge of the loan B The amount of coverage is dependent upon the duration of the loan C The insurance will terminate if the debt is prepaid or refinanced D Usually the individual debtor pays the premium monthly

B The amount of coverage is dependent upon the duration of the loan The amount of the coverage is dependent upon the amount of indebtedness, not the duration of the loan.

How is the funding for Social Security provided? A Through the PIA B Through FICA taxes that are paid by both employers and employees C Through FICA taxes that are paid by employers D Through FICA taxes that are paid by employees

B Through FICA (Federal Insurance Contribution Act) taxes that are paid by both employers and employees ...Self-employed persons pay the entire amount.

Why were industrial policies written? A To provide an additional source of college funds B To offset funeral expenses C To supplement retirement income D To replace lost income due to the insured's death

B To offset funeral expenses

What is the minimum requirement for currently insured status under the Social Security system? A Have 40 quarters of covered employment B Have not had a previous Social Security claim C At least 6 credits earned in the 13 calendar quarters prior to death, disability, or is entitled to retirement benefits D Earned more than minimum wage

C At least 6 credits earned in the 13 calendar quarters prior to death, disability, or is entitled to retirement benefits

A primary purpose of key person life insurance is to do which of these? A Provide the family of the deceased employee with up to ten years of the employee's lost future income B Protect the business against the death of any employee earning at least $50,000 per year C Provide the business with money to recruit and train a replacement employee D Provide the business with money to pay vested retirement benefits to the heirs of the employee as a lump sum

C Provide the business with money to recruit and train a replacement employee A valuable employee with highly specialized knowledge or skills, or who adds significant value to the revenue/profitability of the company is a key person, and wages alone is not a criterion. The death of such a person can negatively impact the business operations. The company may use the death benefit proceeds for any purpose, but one of the most common uses is to cover the expense of recruiting, hiring, and training a replacement, which may take months to accomplish.

In a credit life plan, who is the beneficiary? A The children of the insured B The wife of the insured C The creditor D The husband of the insured

C The creditor Credit life insurance is a group form of life insurance that is owned by and benefits only the creditor in the event of the death of the borrower. It may be issued as an indeterminate amount of coverage, as for a credit card, or it may be a single premium type of coverage in the form of decreasing term for a short term debt such as an automobile loan.

In order for a worker to be qualified for all of the benefits available from Social Security how many credits must be earned? A 30 credits B 6 credits in the last 13 quarters C 1 credit for each year of work between age 20 and age 40 D 40 credits

D 40 credits To be eligible for SS all benefits and be considered fully insured, a worker must have earned 40 credits.

Which of the following best describes Third-Party Ownership? A A key employee buying a life insurance policy on him/herself B A business partner buying a life insurance policy on him/herself C A policy owned by the insured D A policy owned by one person insuring the life of another person

D A policy owned by one person insuring the life of another person

All of the following are characteristics of Franchise Insurance, except: A The employer handles most of the administrative responsibilities, which makes franchise less expensive than individual insurance B The group must be together for a reason other than purchasing cheaper insurance C Premiums are paid by the employer or shared with the employee D Certificates of Insurance are issued

D Certificates of Insurance are issued No Master Policy or Certificates of Insurance are issued as compared to formal group insurance. Although a group is being written, it is through individual policies.

All of the following are typically what key employee life insurance proceeds are used for, except to: A Hire a replacement B Train a replacement C Recruit a replacement D Close down the business

D Close down the business

The arrangement under a Buy-Sell Agreement in which each party purchases insurance on the life of his/her partner(s) is called a: A Deferred Compensation B Entity Purchase Plan C Split-Dollar Plan D Cross Purchase Plan

D Cross Purchase Plan

With credit life, who is normally the policyowner and beneficiary? A The debtor's heirs B The debtor C The insurer D The creditor

D The creditor

In a group life insurance plan, the employee has control over which of the following? A Choice of beneficiary B Mode of premium payments C Choice of insurance company D Type of policy

In group life insurance the sponsor of the plan (the employer) has control over all facets of the coverage and cost, but the choice of beneficiary is left to the participant (the employee). A group life plan may not benefit the sponsor of the plan.