Life- Chapter 6
Types of Buy-Sell Agreements
Cross Purchase Plan Entity Plan Stock Redemption Agreement
Specialized Plans- Credit Life Insurance (Individual and Group)
Either a form of individual coverage on the life of a debtor, or group insurance issued to a creditor providing coverage on debtors for the benefit of creditors.
Surviving Children
Eligible for benefits and covered to age 18 or 19 if still enrolled in high school.
19
If enrolled in an accredited elementary or secondary school, a covered child can continue receiving Survivor Benefits up to what age?
The creditor.
In a credit life plan, who is the beneficiary?
Choice of beneficiary
In a group life insurance plan, the employee has control over which of the following?
40 credits
In order for a worker to be qualified for all of the benefits available from Social Security how many credits must be earned?
It acknowledges the commitments of the partners to each other and to their heirs to assure the continuation of the business in the event one of them dies unexpectedly.
One of the purposes of a Buy-Sell Agreement is which of these?
$255
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?
Types of Group Plan Sponsors
The employer may be a partnership, a corporation, or a sole proprietorship.
Advantages of Buy-Sell Agreement
Legally enforceable Value of the business is previously agreed upon. Immediate and automatic method of transferring the deceased's interest.
Facility of Payment Clause
The __________ allows an insurer to pay death benefits anyone it deems to be entitled in the absence of a designated beneficiary.
Survivor Benefits
Payable to eligible dependents of a fully insured deceased worker. A surviving spouse with a dependent child under age 16 is entitled to monthly income until youngest child reaches 16.
Group Underwriting
Plans can have a probationary period set by the group sponsor.
A policy owned by one person insuring the life of another person
Which of the following best describes Third-Party Ownership?
The sponsor can elect to discontinue the plan
Which of the following is a major risk to an employee covered under an employer's group life insurance plan?
An executive sales manager.
Which of the following is truly a Key Person (Key Employee)?
The amount of coverage is dependent upon the duration of the loan
Which of the following statements is FALSE regarding Credit Life Insurance?
Examples:
A husband buying a policy on a wife. A parent buying a policy on one of their children. A business buying a policy on a key employee. A business partner buying a policy on another business partner.
The debtor generally is both policyowner and beneficiary.
All of the following are characteristics of Credit Life Insurance, EXCEPT
The Grace Period is 10 days.
All of the following are characteristics of Home Service (Industrial) Insurance, EXCEPT
Retirement
Eligible to receive monthly income equal to his/her PIA. Up to age 67. Covered works may receive retirement benefits as early as 62.
Buy-Sell Agreement
Establishes a price with the intent to purchase, at a predetermined value, the assets of a business should one of the contract participants predecease the others.
Group
For those individuals who have health issues, which of the following would be an insurance plan to consider?
The Social Security System
Funding is provided by both employee and employer through the Federal Insurance Contributions Act (FICA) tax. The employer withholds the employee's tax and pays it along with the employer's portion.
Conversion Period
Grace period.
Annual Renewable Term
Group Life Insurance is usually written as:
Industrial (Home Service)
Individual policies are issued to low income workers without a medical exam requirement. Premiums are collected weekly or monthly by the agent servicing that particular area or paid directly to the insurer.
Blackout
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.
Fully Insured
Requires an individual to have earned a minimum of 40 quarter credits or 10 years of employment. Retirement at age 62+. Spousal retirement at age 62+. Widows and widowers can begin receiving Social Security benefits at age 60.
Group Risk Selection
Several aspects, such as size, stability, and industry. May require a minimum number of participants in order to avoid claims that are inadvertently skewed higher because of a few individual substandard risks.
62
Social Security Retirement Benefits are available as early as age _______ but are less than if paid at the full retirement age.
Certificate of Insurance
The Master Policy for a group life plan goes to the employer. What does the employee receive?
The surviving spouse
The Social Security Death Benefit is payable to the ____________.
Business Uses of Life Insurance
To cover the unexpected death of business partners, executives, and key employees by providing funds for the continuation of the business, not for the heirs of the decedent.
Probationary
To help protect against experiencing immediate claims, group plans have a(n) ___________ period set up by the group sponsor.
Insured
Under an Entity Purchase Plan form of a Buy-Sell Agreement, the business is all of the following, except:
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.
An employee's best friend.
Which of the following would not be eligible for coverage under an employer group life insurance plan?
Employers must enroll 100% of eligible employees.
When a group insurance plan is identified as contributory, it means all of the following EXCEPT:
65
A Social Security retirement benefit recipient will receive the greatest benefit starting at which of the following ages?
The loan is paid off or refinanced.
A Credit Life Policy will be cancelled if:
Franchise (Wholesale)
A Master Policy is not issued since underwriting is on an individual basis and individual policies are issued. Evidence of insurability may be required.
Single contract
Group life insures a group of people under a _____________.
Reduce adverse selection
A mandatory participation rate for noncontributory group plans is designed to:
Death Benefits
A one-time lump sum payment of $255 in total may be made after the taxpayer's death. Only payable to spouse or minor children.
$150,000
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:
Third-Party Ownership
A policy owned by one person insuring the life of another person. The 3 parties involved in a third-party ownership are the policyowner, insured, and insurer.
Provide the business with money to recruit and train a replacement employee
A primary purpose of key person life insurance is to do which of these?
Currently Insured
A worker must earn at least 6 quarter credits during the full 13 quarter period ending with the quarter in which the worker dies, becomes disabled, or is entitled to retirement benefits.
PIA of the deceased spouse
After the blackout period has ended, the widow or widower may receive a Social Security income benefit based on the ____________.
Premiums are tax-deductible
All of the following are advantages of having a Buy-Sell Agreement in place, except:
The policy primarily insures the employee's retirement plan
All of the following are correct regarding Key Person Insurance, except:
An employee voluntary life insurance plan
All of the following are examples of third-party ownership, EXCEPT:
The beneficiary
All of the following are parties to a life insurance contract, except:
Entity Plan
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. The entity would name itself as the beneficiary of each policy.
Stock Redemption Agreement
Between the shareholders and a close corporation. Each shareholder agrees to sell their shares upon death to the corporation according to the price, terms, and circumstances specified in the agreement. Shares are bought with corporate $$$.
Key Person (Key Employee)
Contributions have a significant impact on the revenue and profitability of the company, especially in small businesses.
Group Insurance Market
Group life insures a group of people under a single contract.
Decreasing Term
Credit Life insurance is usually what type?
18
Generally, children receive Social Security Survivor Benefits until age ___________.
The insurer can increase the premium at renewal
In terms of planning out a company's budget, what must be taken into consideration if a group life insurance plan is in place?
Franchise Plan
In the group insurance market, under what type of plan would an insured receive an individual policy?
Disadvantages of NOT having a Buy-Sell Agreement
Income surviving family members stops. Surviving business owners may suffer a loss of income. Asset reduction due to forced liquidation may occur. The estate transfer may be delayed due to forced business liquidation. Shares of ownership transfers to surviving relatives.
$1,000 or less
Industrial life insurance is typically sold in face amounts of:
Characteristics of Group Insurance Plans
Participants in the plan do not have personal control of the policy or policy changes as with an individual policy. Group insurance is a contract between the sponsor and the insurance company.
Facility of Payment Clause
The insurer may pay to a relative or anyone it deems entitled to the benefits in the absence of a designated beneficiary.
60
The widow or widower's Social Security blackout period lasts until a surviving, non-remarried spouse reaches age ________.
Group Conversion
There is a conversion period of 31 days in which the employee may, upon termination of eligibility and without evidence of insurability, convert his/her group life insurance benefit to an individual permanent policy.
The insurer
Ultimately, who determines if a life insurance policy with an owner other than the insured will be issued?
State and federal laws
___________ restrict the insurer's underwriting criteria for group policies.