Life Insurance Study Questions

What is the penalty for IRA distributions that are below the required minimum for the year?

50%

A business entity acting as an insurance producer is required to obtain

An insurance producer license

Which of the following is true regarding taxation of dividends in participating policies?

Dividends are not taxable

A couple near retirement is planning for their golden years. They want to make sure that their retirement annuity provides monthly benefits for the rest of their lives. Should one of them die, the other would still like to continue receiving benefits. Which settlement option should they choose?

Joint and Survivor

When is an approval by the commissioner NOT required for the use of policy forms?

Only if the forms have been on file for at least 30 days`

For how long must producers maintain complete records of all complaints?

2 years

When an annuity is written, whose life expectancy is taken into account?

Annuitant

Which of the following is used to determine the annuity amounts that are not taxable?

Exclusion ratio

An unlicensed person impersonating an agent, broker, or adjuster

Fine of $10-$100

Which of the following is NOT true regarding a nonqualified retirement plan?

It needs IRS approval

Which of the following applicants would NOT qualify for a Keogh Plan? -Someone who works 400 hours per year -Someone who has been employed for more than 12 months -Someone who is over 25 -Someone who works for a self-employed individual

Someone who works 400 hours per year

An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would the contract's interest NOT be taxable?

Spouse

J transferred his life insurance policy to his son two years before his death. Which of the following is true?

The entire face value of the policy will be included in J's taxable estate

If a producer is found guilty of a violation which has caused a claimant to suffer actual economic damages, a court may award punitive damages in addition to the amount of the claim. This amount cannot exceed what percentage of claim?

25%

An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay?

50% tax on the amount not distributed as required

Every insurer must file all rates, rating plans, and modifications to its plans with the Commissioner at least how many days prior to the effective date of use?

15 days

If an annuitant dies before annuitization occurs, what will the beneficiary receive?

Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount

For a retirement plan to be qualified, it must be designed for the benefit of

Employees

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT -The insurer determines the amount for each payment -It is a life contingency option -It will pay the benefit only for a designated period of time -The payments are not guaranteed for life

It is a life contingency option

A producer in another state wants to become a producer in Massachusetts. The other state gives the same privileges to Mass producers wanting to be licensed in that state as it does its own producers. Mass therefore extends the privileges of its producers to the prospective producer of the other state. What is this called?

Reciprocity

Who may contribute to a Keogh (HR-10) plan?

Self-employed plumber

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a

Settlement option

What type of annuity activity will cause immediate taxation of the interest earned?

Surrendering the annuity for cash

What type of annuity activity will cause immediate taxation of the interest earner?

Surrendering the annuity for cash

During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal?

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 1/2

Whats a similarity between qualified and nonqualified retirement plans?

Taxation on accumulation

An insurance institution, producer, or insurance-support org may not disclose any personal or privileged information about an individual collected or received in connection with an insurance transaction unless

The disclosure is with the written authorization of the individual

A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called

1035 exchange

Which of the following is NOT true regarding policy loans?

Money borrowed from the cash value is taxable

An agent trying to obtain any premium payment by fraudulent representations

Fine of $100-$1000 and Imprisonment for 1 year

Knowingly paying an unlicensed person acting as a producer

Fine of $50-$500

All the following are general requirements of a qualified plan EXCEPT -The plan must be communicated to all employees -The plan must be for the exclusive benefits of the employees and their beneficiaries -The plan must be permanent, written and legally binding -The plan must provide an offset for social security benefits

The plan must provide an offset for social security benefits

An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true?

He will have to pay a penalty if he is younger than 59 1/2

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

Which of the following best describes what the annuity period is? -The period of time from the accumulation period to the annuitization period -The period of time during which money is accumulated in an annuity -The period of time the effective date of the contract to the date of its termination -The period of time during which accumulated money is converted into income payments

The period of time during which accumulated money is converted into income payments

A nonresident producer who moves from one state to another state or a resident producer who moves from the commonwealth to another state must file a change of address and provide certification from the new resident state

Within 30 days of the change of legal residence

How are contributions to a tax-sheltered annuity treated with regards to taxation?

They are not included as income for the employee, but are taxable upon distribution

An annuitant dies before the effective date of a purchased annuity. Assuming that the annuitant's wife is the beneficiary, what will occur?

The interest will continue to accumulate tax deferred

An insured decides to surrender his $100000 Whole Life policy. The premiums paid into the policy added up to $15000. At policy surrender, the cash surrender value was 18000. What part of the surrender value would be income taxable?

3000

The purpose of rate regulation is to promote the public welfare by regulating insurance rates in order to assure that they

All the above

Which of the following is a feature of a variable annuity? -Securities license is not required -Benefit payment amounts are not guaranteed -Payments into the annuity are kept in the company's general account -Interest rate is guaranteed

Benefit payment amounts are not guaranteed

Engaging in unfair or deceptive acts in connection with insurance transactions

Fine up to $1000 per act

Any other violation, not specified for a penalty

Fine up to $500

In life insurance policies, cash value increases...

Grow tax deferred

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an

Modified endowment contract

Which of the following describes the tax advantage of a qualified retirement plan? -Distributions prior to age 59 1/2 are tax deductible -Employer contributions are deductible as a business expense when the employee receives benefits -Employer contributions are not taxed when paid out to the employee -The earnings in the plan accumulate tax deferred

The earnings in the plan accumulate tax deferred

Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings? -Taxes must be paid in full -Employer's matching contribution can be 50% of employee's salary -75% of employee's contributions are taxed -They are tax deferred until withdrawn

They are tax deferred until withdrawn

If a producer has administrative action taken against his license, he must report such action

Within 30 days of the final disposition on such action

Which of the following can surrender a deferred annuity conbtract? -The beneficiary after the owner's death -A deferred annuity cannot be surrendered -Only the annuity owner -Only the insurance company for nonpayment of premiums

Only the annuity owner

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

Free of federal income taxation

If an annuitant dies during the accumulation period, what benefit (if any) will be included in the annuitant's estate?

Accumulated cash value

Under the 401(k) bonus or thrift plan, the employer will contribute

An undetermined percentage for each dollar contributed by the employee

Annuities can be used to fund which of the following? -Group life insurance -Estate creation -Retirement plans -Variable life insurance

Retirement plans

A 60 year old participant in a 401 (k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true?

The amount of the distribution is reduced by the amount of a 20% withholding tax

Which of the following is TRUE regarding variable annuities? -The company guarantees a minimum interest rate -A person selling variable annuities is required to have only a life agent's license -The annuitant assumes the risk on investment -The funds are invested in the company's general account

The annuitant assumes the risk on investment

What is NOT a requirement from the written application for a license to act as an insurance adviser?

The application must state his professional credentials and all political affiliations for which he has received compensation or served as a member

The Commissioner may require the temporary license to have suitable sponsor who is a licensed producer or insurer and

Who assumes responsibility for all acts of the temporary license

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

Keogh

Which of the following statements is TRUE concerning whole life insurance?

Lump-sum death benefits are not taxable

What isn't true regarding a nonqualified retirement plan?

Needs IRS approval

Any person or organization willfully violating any provision of rate-free making provisions of the law will be punished by a fine of

A maximum of $500 for each violation

What concept is associated with "exclusion ratio"?

Annuities payments

Employer contributions made to a qualified plan

Are subject to vesting requirements

When must an IRA be completely distributed when a beneficiary is not named?

December 31 of the year that contains the fifth anniversary of the owner's death

Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity?

Insurer's guaranteed minimum rate of interest

Which of the following is a feature of a variable annuity? -Securities license is not required -Benefit payment amounts are not guarantees -Payments into the annuity are kept in the company's general account -Interest rate is guaranteed

Interest rate is guaranteed

An insurance company forwards fixed annuity premiums to their general account, where the money is invested. The guaranteed minimum interest is set at 2.5%. During an economic downswing, the investments only drew 2%. What interest rate will the insurer pay to its policyholders?

2.5%

What is the primary purpose of a 401 (k) plan?

Retirement

Which of the following is NOT true about a joint and survivor annuity benefit option? -The surviving annuitant may receive reduced payments -Payments stop after the first death among the annuitants -A period certain option may be included -This option guarantees income for two or more recipients

Payments stop after the first death among the annuitants

The following statement isn't true regarding tax-qualified annuities

Employer contributions are not tax deductible

Which of the following is TRUE regarding variable annuities? -The company guarantees minimum interest rate -A person selling variable annuities is required to have only a life agent's license -The annuitant assumes the risks on investment -The funds are invested in the company's general account

The annuitant assumes the risks on investment

Minimum age requirement for an insurance producer in Mass?

18 years old

If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined?

It is a percentage of the cash value and will decrease over time

Which of the following is TRUE regarding the accumulation period of an annuity? -It is a period of time during which the beneficiary receives income -It is limited to 10 years -It is a period during which the payments into the annuity grow tax deferred -It is also referred to as the annuity period

It is a period during which the payments into the annuity grow tax deferred

What happens if a deferred annuity is surrendered before the annuitization perion?

The owner will receive the surrender value of the annuity