Chapter 6: Markets & Social Security

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. A. Blackout B. Elimination C. Probationary D. Waiting

A. Blackout When the youngest child reaches age 16, the widow's/widower's blackout period begins.

A Social Security retirement benefit recipient will receive the greatest benefit starting at which of the following ages? A. 60 B. 63 1/2 C. 65 D. 62

C. 65 The earlier retirement benefits are requested and received, the smaller they are.

All of the following are examples of third-party ownership, except: A. A key employee plan B. A cross purchase plan C. An employee voluntary life insurance plan D. An entity purchase plan

C. An employee voluntary life insurance plan A key employee plan, a cross purchase plan, and an entity plan all have an owner other than the insured.

All of the following are correct regarding Key Person Insurance, except: A. The policy can be term or permanent B. The policy is source of funds to replace any lost revenue C. The policy primarily insures the employee's retirement plan D. The policy is owned by the employer

C. The policy primarily insures the employee's retirement plan A Key Person Plan is intended to help a company recover from the loss of a key employee until a replacement is found.

Under an Industrial or Home Service Contract, what is normally the face amount of the policy? A. $5,000 B. $2,500 C. $1,000 or less D. $10,000

C. $1,000 or less Under an industrial policy, the normal face amount is $1,000 or less.

Credit Life insurance is usually what type? A. Decreasing Term B. Variable Term C. Level Term D. Increasing Term

A. Decreasing Term Since the amount of the outstanding debt declines over time, decreasing term would make the most sense.

Social Security Retirement Benefits are available as early as age _______ but are less than if paid at the full retirement age. A. 65 B. 62 C. 64 D. 63

B. 62 Social Security Retirement Benefits start as early as age 62, but at a reduced amount.

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 Premiums paid for a Buy-Sell Agreement life insurance policy are not tax-deductible.

The widow or widower's Social Security blackout period lasts until a surviving, non-remarried spouse reaches age ________. A. 50 B. 65 C. 60 D. 62

C. 60 The blackout period ends at age 60.

The Social Security Survivor Benefit is based on the Primary Insurance Amount of the: A. Beneficiary B. Deceased C. Survivor D. Recipient

B. Deceased The Social Security Survivor Benefit is based on the Primary Insurance Amount of the deceased.

Under an Entity Purchase Plan form of a Buy-Sell Agreement, the business is all of the following, except: A. Premium payor B. Insured C. Beneficiary D. Policyholder

B. Insured Under an Entity Purchase Plan form of a Buy-Sell Agreement, the business is the owner, premium payor, and beneficiary of a policy written upon each of the partners or shareholders who are the insureds.

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? A. $250 B. $355 C. $255 D. $350

C. $255 A one-time benefit of $255 is paid to a surviving spouse or child if he/she is eligible for Social Security benefits.

Which of the following is a requirement in order for a third-party ownership policy to be issued by a life insurance company? A. An annual premiums must be paid with the application B. A proper beneficiary must be named C. The policy must be for no more than $100,000 D. Insurable interest must exist between the policyowner and the insured

D. Insurable interest must exist between the policyowner and the insured Insurable interest must exist at the time of policy issuance in order for the insurer to issue the policy.

Which of the following is truly a Key Person (Key Employee)? A. The company bookkeeper B. An executive sales manager C. The company's truck driver D. A rank-and-file employee

B. An executive sales manager In a Key Person Insurance plan, the key person is part of the management team, is more highly paid than the other employees, is respected by customers and vendors, and has direct responsibilities for sales, production, or service.

Group Life Insurance is usually written as: A. Decreasing Term B. Annual Renewable Term C. Increasing Term D. Contributory Term

B. 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.

The __________ allows an insurer to pay death benefits anyone it deems to be entitled in the absence of a designated beneficiary. A. Next of Kin Clause B. Facility of Payment Clause C. Creditor Collection Clause D. Policy's Settlement Option

B. Facility of Payment Clause A Facility of Payment Clause allows the insurer to pay the death benefit to a relative or anyone it deems is entitled in the absence of a designated beneficiary.

The 31 days in which the employee may change his/her group policy to an individual policy upon termination and without evidence of insurability, is known as: A. The Contestable Period B. The Conversion Period C. Ownership Rights Provision D. Change of Policy Provision

B. The Conversion Period As the name implies, the Conversion Period is the period in which an employee may convert the group term death benefit to an individual permanent policy upon termination and without evidence of insurability.

Ultimately, who determines if a life insurance policy with an owner other than the insured will be issued? A. The policyowner B. The insurer C. The beneficiary D. The insured

B. The insurer Without insurable interest, the insurer will not issue the policy.

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: A. The premium will be higher than the group premium B. She has 31 days of eligibility to convert to the private plan without having to prove insurability C. She will be converting her group term benefit to an individual term benefit D. If she waits until the eligibility period has closed, the insurer may require evidence of insurability to reduce adverse selection

C. She will be converting her group term benefit to an individual term benefit She will be converting her group term life to an individual permanent policy.

A partnership involving four equal partners is valued at $1,800,000. Under a Buy-Sell Agreement (Cross Purchase Plan), the amount of the policy on the life of each partner would be: A. $900,000 B. $1,800,000 C. $450,000 D. $150,000

D. $150,000 Each partner's ownership share equals $450,000, thus each partner would own a $150,000 policy on the life of each of the other three partners under a Cross Purchase Plan (3 x $150,000 = $450,000). There would be a total of 12 (4 x 3) policies (12 x $150,000 each = $1,800,000).

Credit Life Policy will be cancelled if: A. The premiums increase by more than 10% B. The loan is paid off or refinanced C. The insurer's credit rating falls below A+ D. The coverage is less than the total debt outstanding

B. The loan is paid off or refinanced The credit life policy can be cancelled when the debt is paid off or is refinanced.

The Social Security Death Benefit is payable to the ____________. A. The next of kin B. The surviving spouse C. The estate of the insured D. The named beneficiary

B. The surviving spouse The Social Security Death Benefit is payable to the surviving spouse or minor children if they meet certain requirements.

Which of the following is true in regard to an Entity Purchase Plan? A. The owners are named as beneficiaries in the policy acquired B. The entity buys life insurance on non-owner key employees C. The business enters into an agreement to purchase the deceased's interest in the business D. It is an incentive plan for key employees

C. 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.

Generally, children receive Social Security Survivor Benefits until age ________. A. 17 B. 15 C. 16 D. 18

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

Which of the following is a major risk to an employee covered under an employer's group life insurance plan? A. Employers pick up all or part of the cost of the insurance B. Open enrollment is offered on an annual basis C. The sponsor is issued a master policy D. The sponsor can elect to discontinue the plan

D. The sponsor can elect to discontinue the plan If employees are relying solely on an employer's group life insurance coverage for their protection needs, they need to be made aware that the plan sponsor can discontinue the plan.

A mandatory participation rate for noncontributory group plans is designed to: A. Reduce adverse selection B. Achieve economies of scale C. Maximize the premium an insurer collects D. Allow the employer to obtain the greatest premium discount

A. Reduce adverse selection Requiring 100% of eligible employees to participate in a noncontributory employer group life insurance plan reduces the risk of adverse selection.

A partnership has 3 partners who each have an equal ownership interest in their $3,000,000 business. How many policies would have to be purchased under a traditional cross purchase buy-sell agreement plan? A. 9 B. 1 C. 6 D. 3

C. 6 There would need to be 6 policies purchased in a traditional cross purchase buy-sell agreement plan (3x2). Each partner would be acquiring a policy on the other two partners.

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

D. 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.

What is the most important thing a buy-sell agreement establishes in the agreement? A. The amount of taxes owed B. The dollar amount of the premium C. The insurance company issuing the coverage D. The price of the business

D. The price of the business The buy-sell agreement establishes a price for the business so a proper amount of life insurance can be acquired to fund the acquisition.

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. 19 Children may continue receiving survivor benefits up to age 19 if enrolled in an accredited elementary or secondary school.

Which of the following best describes Third-Party Ownership? A. A business partner buying a life insurance policy on him/herself B. A key employee 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 When a policy is owned by someone other than the insured, it is a third-party ownership situation.

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

B. PIA of the deceased spouse The widow or widower may receive a Social Security income benefit based on the PIA of the deceased spouse.

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

D. 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.

All of the following are characteristics of Home Service (Industrial) Insurance, except: A. Industrial policies generally have a face amount of $1,000 or less B. A Debit Agent sells policies house-to-house C. The settlement option is a lump sum payment D. The Grace Period is 10 days

D. The Grace Period is 10 days The Grace Period under industrial policies is 4 weeks, not 10 days.

In which market are Certificates of Insurance issued to insured individuals? A. Group B. Industrial C. Individual D. Franchise

A. Group In the group market, no individual policies are issued. The employer receives the Master Contract and the employees or members receive Certificates of Insurance.

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

A. Probationary A probationary period is set up to help reduce the chance of facing immediate claims.

Group life insures a group of people under a _____________. A. Single contract B. Certificate of insurance C. Card of insurance D. Number of policies

A. Single contract Group life insures a group of people under a single contract.

___________ restrict the insurer's underwriting criteria for group policies. A. NAIC and Insurance Department rules and regulations B. State laws C. Federal laws D. State and federal laws

D. State and federal laws State and federal laws restrict the insurer's underwriting criteria for group policies.

All of the following are parties to a life insurance contract, except: A. The insured B. The policyowner C. The insurer D. The beneficiary

D. The beneficiary While beneficiaries are named, they are not a party to a life insurance policy.

All of the following are characteristics of Credit Life Insurance, except: A. This insurance is normally Decreasing Term and the amount of insurance reduces as the obligation reduces B.The amount of the insurance benefit must not exceed the total amount of indebtedness C. The insurance is either a form of individual coverage on the life of a debtor, or a form of group insurance issued to a creditor providing coverage for debtors D. The debtor generally is both policyowner and beneficiary

D. The debtor generally is both policyowner and beneficiary The creditor (not the debtor) is normally both the policyowner and beneficiary.

In terms of planning out a company's budget, what must be taken into consideration if a group life insurance plan is in place? A. The group rate will go down based upon an increase in the company's credit rating B. Those converting to an individual plan are most likely the least insurable C. If it is a contributory plan, not all covered employees will pay their share of the premiums D. The insurer can increase the premium at renewal

D. The insurer can increase the premium at D. 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.