Incorrect Quiz Questions

A deferred annuity rider that lets the annuity owner commit only part of the annuity's funds to providing guaranteed lifetime income, leaving the remainder available for withdrawal at the owner's discretion, is called a:

guaranteed income rider

When can a waiver of premium rider be added to a life insurance policy?

any time after the policy is issued, subject to a maximum age stipulated in the policy

Life insurance underwriters are most likely to request a consumer (inspection) report on which of the following?

applicants who are seeking very high amounts of life insurance

To be eligible for payments under a life insurance policy's long-term care rider, the insured must be certified as unable to perform which of the following?

at least two activities of daily living for at least 90 days

Regarding life insurance policy dividend options, which of the following types of life insurance is purchased under the paid-up additions option?

single premium life insurance

What is the only part of a nonqualified annuity's death benefit that is taxable?

the amount that exceeds the amount the owner paid into the contract

In a third-party life insurance contract, the parties to the contract are the:

the owner, the insured, and the insurance company

The premiums that a company pays for corporate-owned life insurance (COLI) on the lives of its employees are generally:

not tax deductible

Which statement correctly describes the purpose of the McCarran-Ferguson Act?

It exempted the insurance industry from federal antitrust laws as long as the state regulates in this area.

If Sam makes a full or partial withdrawal from his deferred annuity before the contract annuitizes, which of the following statements applies?

Withdrawals are fully taxable until they equal the contract's gain (i.e., interest earnings), after which all subsequent withdrawals are tax free.

What is the typical life insurance contract's reinstatement provision period?

three to five years, but may be longer depending on the case and the laws of the state that control the policy

What options does an insurer have when asked by an annuity owner for a full withdrawal of an annuity contract's accumulated value?

The insurer must comply with the request.

All the following statements about standard policy exclusions are correct EXCEPT:

The war and commission of a felony exclusions are required by law.

Bob bought a universal life insurance policy with a $100,000 stipulated amount and chose an Option 2 (increasing) death benefit. At his death ten years later, the policy's cash value had increased to $50,000. What will his beneficiary receive?

$150,000 UL death benefit Option 2 pays an increasing death benefit equal to a level net amount at risk plus the cash value. The beneficiary will get $150,000 (the $100,000 specified amount plus the $50,000 increase in cash value).

An indexed annuity with a participation rate of 75 percent is currently valued at $10,000. If the S&P 500 increases 10 percent during the contract's term, how much interest will be credited to the annuity?

$750 For that period the contract earned $750 ($10,000 × .075).

When does the free-look period for a variable life insurance policy end?

10 days after the policy is delivered, or 45 days after the insurance application is completed, whichever is later

Which of the following statements best describes how employer-paid premiums for a nondiscriminatory group life insurance plan are treated for tax purposes?

Employers can deduct premiums paid on a group life insurance plan.

Which of the following is NOT an unfair claims settlement practice if committed by an insurance company in New Jersey?

Failing to promptly settle a claim for which liability is uncertain

Which of the following statements about IRA rollovers is correct?

Funds can be rolled over tax free from one IRA to another.

Which statement regarding an insurer's general account is correct?

General account funds are invested only in safe, secure long-term assets such as U.S. government securities, blue-chip dividend-producing stocks, and investment-grade bonds.

All of the following statements about the fixed amount life insurance settlement option are correct EXCEPT:

Payments must be made on a monthly basis. correct: The insurer holds the proceeds under this option. The insurer then pays out the proceeds (including interest) on a schedule until the principal is exhausted. The policyowner or beneficiary selects the payment amount. This payment amount determines how long the payments continue. If the payee dies before the principal reaches zero, the insurer pays the contingent payee until the account is depleted. The contingent payee can also choose to receive the present value of the final payments in a lump sum.

If an applicant for life insurance unintentionally misstates her age on her life insurance application, what will the insurer do if this is discovered after the end of the contestability period?

The insurer will re-calculate the death benefit. The insurer will re-calculate the death benefit to reflect what it should have been based on the correct age and actual premiums paid, although it can no longer void the policy after the contestability period has ended.

What happens when a universal life insurance policy's cash value no longer covers the monthly deductions to cover the policy's insurance and operational costs?

The policy lapses.

Once annuitized income payments begin, which of the following statements is correct?

The settlement option cannot be changed.

Sally owns a $750,000 life insurance policy that names her son as beneficiary. Which statement correctly describes how the policy death benefit will be treated in Sally's estate when she dies?

They will be included in Sally's estate but whether or not they are subject to estate taxation depends on the value of her estate.

Mary, a currently insured worker under Social Security, recently died. Her 85-year-old widowed mother, who was financially dependent on Mary, would be entitled to which of the following benefits under Social Security?

a monthly benefit of 82.5 percent of Mary's PIA

U.S. tax law requires IRA owners and other qualified plan participants to start taking required minimum distributions from their plans by April 1 of the year following the year the individual turns:

age 72

A two-tiered fixed annuity is designed to credit a higher rate of interest to:

annuity owners who annuitize the contract

In what form does the MIB present its information to insurers?

numeric codes, indicating risks identified in previous applications, that are communicated electronically To protect the applicant's privacy, the MIB does not provide detailed explanations of the data it gathers and it does not make underwriting recommendations.

A life insurance policy's long-term care rider requires that an insured diagnosed with a cognitive disorder do which of the following to be eligible for benefit payments?

provide a physician's certification, obtained within the past 12 months, that his or her health or safety is at risk without supervision

All the following statements regarding split-dollar life insurance plans are correct EXCEPT:

The employer pays the entire premium and the employee receives the policy benefits. correct: There are three basic types of split-dollar plans. If the employee owns the life insurance policy, the portion of the premium paid by the employer may be considered taxable income to the employee. Either the employee or the employer may own the policy.

What is the maximum amount of time most states allow insurers to delay paying cash surrender values?

six months

What does a family life insurance policy offer?

whole life insurance on the primary insured and term life insurance coverage on the spouse and each child to age 21

All the following statements about the interest-only life insurance settlement option are correct EXCEPT:

The interest rate used with this option is the lower of a current rate or the guaranteed rate specified in the policy. correct: The policy specifies a minimum interest rate. Interest is most commonly distributed monthly or annually. When a policyowner selects the interest only option, the insurer holds the policy proceeds until a future date and pays out the interest that those proceeds earn.

Which of the following statements about insured executive bonus plans is correct?

The portion of the premium paid by the employer can be deducted by the employer and is treated as taxable income to the executive.

With a joint life insurance policy, which of the following best describes the coverage continuation option available to the surviving insured upon the death of the first insured?

The surviving insured may buy an individual policy with the same or a lesser face amount, without having to provide evidence of insurability.

Most disability income benefit riders also include which of the following?

provision for a waiver of premium Most disability income benefit riders also include a provision for a waiver of premium. In other words, the disability income rider waives the policy's premiums while providing monthly income payments. So when a person buys a disability income rider, he or she does not have to buy a waiver of premium rider.

The basic agreement between the insured and the company, stating the company's promise to pay the policy's face amount (the death benefit) to the named beneficiary, is contained in which part of the life insurance policy?

the insuring clause The insuring clause is the basic agreement between the insured and the company.

What is the primary distinction between individual life insurance and group life insurance?

the number of lives covered under the policy

A whole life insurance policy matures, or endows, when:

the policy's cash value equals its face amount

Which of the following statements is true regarding an insured executive bonus plan?

The executive is the policyowner.

Jenny has purchased a variable annuity. She directs $2,500 of her $5,000 premium deposit into the contract's blue-chip stock sub-account when its net asset value is $10. How many accumulation units has Jenny bought?

250 accumulation units of the sub-account Jenny bought 250 accumulation units of that sub-account ($2,500 ÷ $10).

Under the "bring-back rule," the death benefit of a life insurance policy that was transferred to a third party by the insured is included in the insured's estate if made within

3 years prior to the insured's death

Which of the following correctly describes the basic tax treatment of deferred annuity death proceeds paid out before the contract is annuitized?

A portion of the death benefit, essentially representing the interest earned by the annuity, is taxable.

The senior vice president of Salem Computers is covered by a salary continuation plan, which stipulates that he cannot work for a competitor. What will happen if he decides to leave his position and work for another computer company?

He will forfeit his benefits under the plan since he failed to meet the conditions in the agreement.

Which statement correctly describes how corporate-owned deferred annuities are taxed?

Income tax is payable annually on that year's gain in the contract.

When a deferred annuity is annuitized, which one of the following most correctly describes the tax treatment of the contract's "gain" (i.e., accrued interest) portion of each payment?

It is taxable at the annuitant's marginal income tax rate.

Which of the following correctly describes the disability income benefit rider available with life insurance policies?

It pays a monthly income determined by a formula specified in the policy if the insured becomes disabled, without impacting the policy's cash value or face amount.

The charge-free withdrawals provision of a deferred annuity contract does which of the following?

It permits annuity contract owners to withdraw a specified percentage of the accumulated value annually without imposing a surrender charge.

Jan and David both work for Acme Motors and earn $50,000 of taxable income annually. If Jan contributes to Acme's 401(k) plan this year and David does not, which of the following statements is true?

Jan's taxable income will be lower than David's. If Jan participates in Acme's 401(k) plan, she will defer part of her wages into the plan. The amounts deferred are not included in Jan's gross income or subject to income tax. As a result, Jan's taxable income will be lower than David's.

All of the following statements about the taxation of annuities are correct EXCEPT:

Qualified annuities are taxed no differently than nonqualified annuities. correct: Interest that accumulates in a deferred annuity is not taxed while the funds remain in the annuity. If an annuity owner withdraws funds as full or partial surrenders before the contract annuitizes, then any withdrawn annuity interest earnings are taxable. An annuity's basis-essentially the sum or premiums paid-is not subject to taxation however it is withdrawn.

Which statement about credit life insurance is most correct?

State laws typically set a maximum coverage limit that creditors can offer to borrowers.

Life insurance has been purchased by ABC Company on the lives of two partners, Hugh and Danny, and three key employees Eileen, Vern, and June. Which of the following would apply if Hugh and June were to leave the business?

The company could keep the life insurance it has on both Hugh and June, even though both are no longer employed there. A company can keep the life insurance it carries on its employees, even when they are no longer employed there.

Andrea bought a $300,000 term-to-age-55 policy. All the following statements about her policy are correct EXCEPT:

The policy will generate a cash value that is payable at age 55. correct: It is possible that Andrea could convert the term policy to a life insurance policy that provides coverage for Andrea's entire life even if she becomes uninsurable. The policy provides $300,000 of coverage until Andrea reaches age 55. The premium for the policy stays the same until the policy expires.

All the following statements regarding the "spendthrift clause" of a life insurance policy are correct EXCEPT:

The spendthrift clause keeps beneficiaries from claiming any death benefits until the insurer checks their personal and business credit histories. are correct: The spendthrift clause keeps the beneficiary's creditors from forcing the insurer to pay them the death benefit. The spendthrift clause keeps the beneficiary from changing the settlement option chosen by the policyowner. The spendthrift clause protects death benefits only until they are paid to the beneficiary, at which point they are no longer protected.

Which of the following statements best explains the basic level premium concept of ordinary whole life insurance?

The steady reduction of the policy's net amount at risk offsets the cost of pure insurance that rises with age. There is no averaging involved. The premium remains level because the amount of pure insurance protection decreases with age, offsetting the ever-rising cost of insurance.

Which of the following statements regarding association group life is correct?

There must be a minimum of ten association members enrolled in the plan.

When an employee retires, what is the general income tax treatment of the benefit payments he or she receives under a deferred compensation plan?

They are fully taxable.

Which one of the following most accurately describes the income tax treatment of life insurance death benefits received by a terminally ill insured under the accelerated benefits rider?

They are generally income tax free. Except in so-called transfer-for-value cases that are beyond the scope of this course, the qualifying insured pays no income tax on accelerated death benefit payments made prior to death.

All the following statements about universal life insurance partial surrenders are correct EXCEPT:

They incur interest charges.

All the following statements regarding the automatic premium loan (APL) are correct, EXCEPT:

Under the APL, a policy loan is created to pay a premium on its due date.

What do covered employees receive to show they have coverage under a group life insurance policy?

certificate of insurance

When Tom, an agent for ABC Insurance, receives an approved policy, he MUST do all of the following, EXCEPT:

mail the policy to the applicant by certified mail and set up a time for the policyowner to meet with Tom to review it MUST: verify that any requested backdating has been done review it to make sure that it is what the applicant applied for and expected verify that any applied-for benefit riders have been added

Which of the following persons would not qualify for a temporary producer's license in New Jersey?

part-time producer of a licensed agency

Under the transfer-for-value rule, which of the following ownership transfers of a life insurance policy is a taxable transfer?

sale of the policy to the current owner's brother If a policy is sold to someone other than the insured, a business partner, or the current owner's corporation, the gain on the policy will be taxable to the new owner (who is likely the new beneficiary).

The federal Risk Retention Act of 1986 applies to which businesses?

self-insuring businesses A risk retention group (RRG) is an insurance company that provides self-insurance services to its owner-members. These members all have a business, occupation, or professional relationship with one another.

Which type of life insurance company pays taxable dividends to its stockholders?

stock company

Whether a variable annuity's monthly income rises, falls, or stays level depends largely on which of the following?

the assumed interest rate (AIR) selected by the contract owner Once determined, the number of annuity units does not change and therefore does not directly impact changes in the income amount.

Pam is a vice president employed by Gulf, Inc., where she has $300,000 in coverage under the company's noncontributory group life insurance plan. What portion of that coverage is taxable to Pam?

$250,000

All of the following statements about life insurance policy long-term care riders are correct, EXCEPT:

An insured must first be hospitalized before qualifying for LTC benefit payments.

Which of the following statements correctly describes the relationship, if any, between the application and the insurance contract?

The application is part of the entire contract.

Any after-tax contributions Tom makes toward the cost of his group life insurance coverage are treated in which of the following ways?

They are subtracted from the imputed income of the employer's contributions on a dollar-for-dollar basis.

The purpose for a long-term care rider with a deferred annuity contract is to:

allow withdrawals from the deferred annuity without a surrender charge if the annuitant is confined to a nursing home

The amount of money a person might typically receive from a viatical settlement is:

50 to 80 percent of the death benefit.

Which statement about converting coverage under a children's term rider is correct?

Conversion is possible even if the child is uninsurable, and the converted policy coverage amount may be greater than the amount provided under the rider. The child can convert the coverage to any permanent life insurance policy the insurer is then issuing without proof of insurability, and the conversion coverage may be greater than the rider coverage.

Which of the following explains why a traditional waiver of premium rider does not work with a universal life insurance policy?

Premium amounts for a universal life policy are flexible, whereas they are fixed for traditional life insurance policies.

In a current assumption whole life policy, what happens to premium rates if an insurer earns more on its investments than was factored into the premium calculation?

Premiums decrease to a new rate supported by the actual investment experience.

All the following statements regarding an insured executive bonus plan are correct EXCEPT:

The employer is required to pay all of the premiums for the policy. correct: The employer can take an income tax deduction for premium payments it makes under the policy. The executive owns the life insurance policy. The executive can choose the beneficiary under the policy.

All of the following statements about indexed life insurance are correct EXCEPT:

The insured bears all of the investment risk with an indexed life insurance policy.

Which of the following statements about the tax treatment of funds received through a qualified viatical settlement is correct?

The insured pays no federal income tax but may have to pay state income tax.

Which of the following will happen if the outstanding balance of a whole life insurance policy loan, including accrued interest, ever exceeds the policy's cash value?

The insurer will cancel the policy.

Phil selected the uncommon paid-up insurance option for his participating whole life insurance policy. Which of the following best describes the purpose for this type of dividend option?

pay up the whole life insurance policy several years early The paid-up insurance option lets the policyowner use the dividends to pay up the life insurance policy early. A policyowner who chooses this option could pay up a whole life policy several years early, depending on the policy and the dividend amounts.

With respect to life and health insurance policies, the term "modal premium" generally refers to

the policy's premium amount for each of several different premium payment frequencies

If a lapsed life insurance policy is reinstated, the reinstated policy's premiums will be:

the same as they were under the policy prior to its lapse

In the purchase of a life insurance contract, the applicant's consideration consists of:

the signed application and the first premium

The Fair Credit Reporting Act (FCRA) generally requires insurers that seek a credit report to notify the applicant of the request within:

three days of requesting the report

Under the integrated long-term care option, what percentage of the base policy's face amount can be used for long-term care expenses?

up to 75 percent, depending on the insurer

A producer must be registered with the Financial Industry Regulatory Authority (FINRA) to sell which one of the following types of life insurance?

variable life insurance

A rider that waives all monthly deductions from a UL policy's cash value but credits nothing to the cash value if the insured becomes totally disabled is called a:

waiver of monthly deductions rider

Tom is an insurance broker and just sold a life insurance policy issued by ABC Insurers to his client Ella. Which party does Tom represent in the transaction?

ella A broker places insurance with insurers that he or she does not represent as an agent. In an insurance transaction, a broker represents the insured, not the insurer.

At the end of a contract period, market-value adjusted annuity owners can do all of the following, EXCEPT:

extend the contract term with a higher guaranteed rate

Variable life insurance policies offer all of the following EXCEPT:

flexible premium payments

The needs approach to determining life insurance needs quantifies two basic categories of life insurance needs, which are:

immediate lump-sum cash needs and ongoing income needs

Which annuity settlement option pays income for the annuitant's life, but no less than for a specified number of years?

life income with period certain

Amanda, age 45, bought a $50,000 ten-year renewable and convertible term life policy. Regarding this, all the following statements are correct EXCEPT

premiums for this policy will be more than for a $50,000 permanent life insurance policy. All other factors being equal, a term life insurance policy-even a renewable and convertible one-will be less expensive than a permanent life policy. correct: premiums for this policy will be more than for a $50,000 ten-year nonrenewable and nonconvertible term life policy. premiums for this policy will be more than for a $50,000 ten-year nonrenewable but convertible term life policy. premiums for this policy will be more than for a $50,000 ten-year renewable but non-convertible term life policy.

With interest-sensitive whole life insurance policies, insurers may change premium rates after reviewing their investment experience in a process called:

redetermination

Under a market-value adjusted annuity (MVA), an interest rate adjustment may reduce the annuity's effective rate of interest as low as:

the contract's minimum guaranteed rate of interest

Who normally pays for medical exams or lab tests that insurance companies request during the life insurance underwriting process?

the insurance company

Which of the following statements regarding variable annuity annuitization is correct?

Annuitization under a variable annuity contract provides income payments that can fluctuate up or down.

Donna, age 40, buys a $200,000 straight whole life policy. On the same date, Kara, age 40, buys a $200,000 20-pay life policy. Which of the following statements is correct?

Kara's policy will build cash value quicker than Donna's policy while she is paying premiums, but once premiums stop, cash value growth will slow down. When compared to Donna's policy, Kara's policy will build cash value quicker while premiums are payable.

All the following statements regarding adjustable life insurance are correct EXCEPT:

Policy premiums can be changed up or down whenever the policyowner wants to do so. Most adjustable life insurers require advance notice of premium change requests and limit changes to once per year.

If an applicant for an insurance policy submits an application without the first premium, which of the following is correct?

The applicant has invited the insurer to make an offer. When an applicant submits an application without the first premium, the applicant has invited the insurer to make an offer. In contrast, when an applicant submits an application to the insurer with the first premium payment, the applicant has made an offer that the insurer may or may not accept.

An endowment policy matures (endows) when its cash value equals its face amount, which may be:

at almost any age

Premium rates will vary unpredictably depending on the insurer's actual experience in which one of the following types of whole life insurance?

current assumption whole life

Annuity contracts include a provision to pay a death benefit if the owner or annuitant dies before the contract annuitizes. What does this death benefit typically equal?

either the contract's accumulated value or the amount of premium the owner invested, whichever is greater

Barbara is an employee who has group life coverage through her employer. Which of the following most likely describes the type of policy covering Barbara?

group annually renewable level term life insurance

Under a disability waiver of premium rider, an insured most commonly must be totally disabled for how long before the waiver begins?

6 months

Which of the following statements correctly describes the tax treatment of withdrawals from a modified endowment contract (MEC)?

Full withdrawals and policy loans from a MEC are treated on a LIFO (last-in/first-out) basis; in addition to income tax, MEC withdrawals taken before the owner's age 59½ are subject to a 10 percent penalty.

All the following statements regarding the disclosure that must be made with accelerated benefits riders are correct EXCEPT:

Insurers are required to provide a disclosure statement to the applicant only when an accelerated benefit payout is requested.

Which statement best describes the restrictions an insurer must operate under when using information from the MIB?

Insurers cannot rate or decline a life insurance applicant based solely on MIB information.

What happens to a signed application after the applied-for policy is issued?

It becomes part of the contract between the insurer and the policyowner.

Melissa asks to continue her lapsed universal life insurance policy under the extended term option. How will the insurance company respond?

It will tell Melissa that her policy does not have the extended term option and she may only take any remaining cash value in cash or let the policy continue without premiums until the cash value can no longer cover monthly deductions.

Which statement most correctly describes the tax treatment of policy loans from a non-MEC whole life insurance policy?

Life insurance policy loans are not taxed.

Bill failed to satisfy the continuing education requirements to keep his producer's license active in New Jersey. Eighteen months later, he decides to renew his license. Can he do so?

No; he must apply for a new license. A producer whose license lapses may reinstate the license within one year if he or she fulfills the continuing education requirements, pays a late renewal fee, and submits a certification regarding whether he or she transacted business as a producer during the unlicensed period. However, failure to reinstate the license within this period requires the person to apply for a new license.

Which statement regarding defined contribution qualified plans is correct?

Participants are always fully vested in their contributions, but employer contributions may not fully vest for several years.

All of the following statements about the taxation of annuities are correct EXCEPT:

Qualified annuities are taxed no differently than nonqualified annuities.

Cindy and Rich each bought a $100,000 universal life insurance policy from the same insurer, each with a ten-year back-end surrender charge schedule. In year two, Cindy withdrew $5,000 from her policy. Rich withdrew $5,000 from his policy in year five. Which of the following statements is most correct regarding surrender charges they may face?

Rich will have a lower surrender charge than Cindy. Surrender charges normally decline over a period of time. Cindy and Rich will not pay the same surrender charge because Cindy withdrew part of the policy's cash value earlier in the policy term than Rich.

Jessica, age 48, owns a traditional IRA that she funded with tax-deducted contributions and which is now worth $300,000. Which of the following correctly describes the tax consequences of converting her IRA to a Roth IRA?

She would have to pay income taxes on the entire $300,000.

Which of the following will happen if a traditional IRA owner dies before all of the funds in his or her account have been paid out?

The balance will be paid to the beneficiary and taxed as ordinary income

What is the main difference between a traditional deferred compensation plan and a salary continuation plan?

The covered employee does not defer compensation with a salary continuation plan.

If an insured qualifies for and takes an accelerated benefit from a life insurance policy, which of the following accurately describes the impact this will have on the death benefit?

The death benefit is reduced by the amount of the accelerated benefit payment and may be further reduced to cover lost interest.

All the following statements regarding stranger-owned life insurance (STOLI) are correct EXCEPT:

The insured retains the right to designate the policy's beneficiary. are correct: Key person, or key employee, life insurance is an example of third-party ownership. The business applies for, owns, and is the beneficiary of the policy covering the life of a key employee. Life insurance used as key person life is normally owned by the business rather than the insured.

If an insured dies during her life insurance policy's grace period without having paid her premium, what is the insurance company's obligation?

The insurer will pay the death benefit after first deducting the unpaid premium and any unpaid policy loans.

Why do endowment contracts not enjoy the same favorable tax treatment as life insurance?

They mature before age 120. To meet the legal definition of life insurance, a policy cannot mature (endow) before age 120 (95 for universal life). However, endowment contracts build cash values quickly and endow well before age 120.

In setting premiums for a new policy, when do actuaries assume those premiums will be paid?

They will be paid in full at the beginning of the policy year.

Mary inherited $10 million several years ago. She has just bought a life insurance policy to help preserve her estate. All of the following statements regarding this are correct EXCEPT:

To keep policy proceeds out of her estate, Mary should make sure she is the owner. If the policy is owned by the insured, then policy proceeds are included in the estate. Since her estate is valued well over $5 million, this is not something she should do, as it will add to her taxable estate.

All of the following statements about key person life insurance are correct, EXCEPT:

Upon the insured employee's death, the employee's surviving family receives the policy's death benefit.

To meet the federal definition of life insurance and thus qualify for life insurance's favorable tax treatment, all permanent life insurance policies must have:

a corridor of pure insurance protection between the cash value and death benefit, the amount of which depends on the insured's age According to the legal definition of life insurance, a life insurance product cannot consist fully of cash value. The death benefit must be greater than the policy's cash value by a specified percentage. For universal life insurance, the policy must contain a corridor of insurance protection through age 95.

Which of the following is guaranteed under most variable annuity contracts?

a death benefit, if the owner or annuitant dies before the contract is annuitized

Tax law considers any limited payment life insurance policy that is paid-up in seven years or less to be which of the following?

a modified endowment contract

The non-working surviving spouse of a worker who is receiving OASDI retirement benefits is entitled to which of the following benefits from Social Security?

a monthly benefit of 50 percent of the worker's PIA at the spouse's full retirement age (FRA)

The convertibility provision of a term life policy lets the owner convert the term coverage into what type of policy?

a permanent life insurance policy

Jones is the policyowner and insured of a life insurance policy that contains a standard suicide provision. He commits suicide 18 months after the policy was issued, Jones's beneficiary will get which of the following from the insurer?

a return of premiums paid, plus interest

Insurers will decline applicants with very high substandard risk ratings. What percentage of applicants do insurers reject?

about 2 percent

The entire contract provision states that changes can be made to policy provisions by:

an executive officer of the company only

Which one of the following statements about term life insurance is most correct?

At any given age when issued, a level term policy will be less expensive than a permanent policy of the same face amount.

Under the re-entry method, an insured can renew a level term life insurance policy at the end of the specified term at a lower rate than the guaranteed rate by doing which of the following?

proving insurability

All of the following statements about binding receipts are correct EXCEPT:

Binding receipts are the most common type of premium receipt used with life insurance sales. Conditional receipts and temporary insurance agreements are the most common receipts used with life insurance applications. correct: If underwriters determine the applicant is uninsurable, then a binding receipt terminates coverage when that determination is made. An alternative to a binding receipt is the temporary insurance agreement. A binding receipt guarantees coverage from the time the applicant completes the application through the underwriting process, even if the applicant is found to be uninsurable.

Jessica, age 25, buys a $100,000 life insurance policy. The initial premium is lower than straight whole life rates and increases each year for the first ten years of the policy period. After that, the premium levels off and stays at that amount for the life of the policy. What type of policy does Jessica own?

graded premium whole life

Four shareholders of ABC Corporation, who each own a $1,000,000 interest in the company, enter into a stock redemption agreement funded with life insurance. If one shareholder dies six months later, all the following statements are correct EXCEPT:

The three remaining shareholders will buy the deceased owner's interest from his estate. Under a stock redemption agreement, the business, not the individual shareholders, buys the interest or shares of a deceased partner or shareholder. The value each survivor's interest in the business then rises by one-third (in this example). correct: This is a form of entity-purchase buy-sell plan. The insurer will pay the $1,000,000 death benefit from the deceased owner's policy to ABC Corporation. Each of the surviving shareholders will then own a one-third share of ABC Corporation.

Steve, age 72, owns an IRA. The required minimum distribution (RMD) for Steve this year was $6,000, but he only withdrew $4,000. What, if any, penalty tax will Steve have to pay?

$1,000 Failure to take an RMD results in a tax penalty of 50 percent of the difference between the amount that was taken and the amount that should have been taken. In this case, the RMD is $6,000 and only $4,000 was distributed, so Steve will owe a tax of $1,000 (i.e., 50 percent of the $2,000 difference between the two amounts).

When Gary bought an indexed annuity with a $10,000 premium deposit, the S&P 500 Index was at 1000. At the end of the contract's first term one year later, this index was at 1100. Based only on this information, what is the basis for the amount of interest credited to Gary's contract?

10 percent When Gary bought his annuity, the S&P 500 was at 1000. One year later it was at 1100: an increase of 10 percent. Thus, the basis for the amount of interest to be credited to Gary's EIA contract is 10 percent.

Barb, age 40, buys a ten-pay life policy while Jill, age 40, buys a life paid up at age 65 policy. All other factors being equal, which of the following statements is most correct?

Barb will pay a higher monthly premium over a shorter time than Jill, and their policies will mature at about the same time. The shorter the premium-paying period, the higher the premium that is charged. Because Barb's policy will be paid up after ten years, her premium will be higher than Jill's. All permanent life insurance policies mature at age 120.

Bill recently purchased an indeterminate premium whole life insurance policy. Which one of the following statements about his policy is correct?

Bill's policy was issued with a low introductory premium that may periodically increase over time, but which will never be higher than a guaranteed maximum rate. Bill will pay a lower fixed premium for a certain number of years (such as the first five or ten). At the end of that introductory period, his policy's premium may increase depending on the insurer's investment earnings, though it is guaranteed not to exceed a maximum level specified in the contract.

Which of the following statements correctly describes the tax treatment of life insurance death benefit settlement options other than a lump-sum payment?

The death benefit principal of every settlement option payment is income tax free, but the interest earnings are taxable income to the beneficiary in the year earned.

A fixed deferred annuity that has a guaranteed interest rate of 3 percent and a current declared rate of 5 percent can adjust the current declared rate:

any time after the initial rate period

If a permanent life insurance policy lapses and the owner does NOT select a nonforfeiture option, the insurer will automatically:

apply the extended term insurance option

How is increasing term life insurance normally sold?

as a rider attached to a permanent life insurance policy

In order to be grounds for the insurer to void a contract, an applicant's statements on an insurance application must involve:

the deliberate withholding of material facts Statements in insurance applications are deemed to be representations, not warranties.