Series 65: Unit 24 Quiz 2

Your 55-year-old client owns a nonqualified variable annuity. He originally invested $50,000 4 years ago. The annuity has grown to a value of $60,000. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? A. $4,500.00 B. $0.00 C. $4,000.00 D. $3,000.00

$4k

A 35-year-old client purchased a variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is A. 9% of premium per year, computed over a 20-year period. B. 8.5% per premium payment. C. 9% per premium payment. D. 8.5% of total premiums over the life of the plan.

9% of premium per yr, computed over a 20-yr period

In a scheduled premium variable life insurance policy, which of the following are guaranteed? A. A minimum death benefit B. The ability to borrow a maximum of 75% of the cash value once the policy has been in force at least 3 years C. The right to exchange the policy for a permanent form of insurance with comparable benefits within the first 24 months of issue, as long as the insured passes a new physical examination D. A minimum cash value

A minimum death benefit

Life insurance is generally purchased to replace the lost income of the insured. A client wishing to purchase a policy with a level death benefit and level premium for as long as the premiums are paid would choose A. a 5-year renewable term policy. B. a universal life policy. C. a decreasing term policy. D. a whole life policy.

A whole life policy

Which of the following insurance company products is likely to have the longest time for which a surrender charge will be levied? A. Variable annuity B. Class B shares C. Whole life insurance D. Bonus annuity

Bonus annuity

Juliette, a math teacher in the local high school, owns a qualified, tax-deferred annuity. When she retires, what will be the tax consequences of her annuity payments? A. Her annuity payments are partly taxable as capital gain and partly taxable as ordinary income. B. Her annuity payments are tax free. C. Her annuity payments are partly taxable and partly tax-free return of capital. D. Her annuity payments are all taxable as ordinary income.

Her annuity payments are all taxable as ordinary income

All of the following statements regarding universal life insurance are correct except A. it may include a minimum guaranteed interest rate. B. it offers two death benefit options. C. it offers the policyowner exceptional flexibility in adjusting the premiums, cash value, and death benefit. D. its premiums are fixed for the life of the policy.

Its premiums are fixed for the life of the policy

The difference between a fixed annuity and a variable annuity is that the variable annuity 1. offers a guaranteed return 2. offers a payment that may vary in amount 3. will always pay out more money than the fixed annuity 4. attempts to offer protection to the annuitant from inflation

Offers a payment that may vary in amount and attempts to offer protection to the annuitant from inflation

A married couple, both age 28, are considering the purchase of an annuity to help them save monthly for their retirement at age 65. They want an annuity that will allow them to participate in the equities market, and because of their long-term investment horizon, they are not particularly concerned about safety of principal. Which of the following annuity products best meets their needs? A. Single premium deferred variable annuity B. Periodic payment deferred variable annuity C. Periodic payment deferred fixed annuity D. Single premium deferred fixed annuity

Periodic payment deferred variable annuity

One way in which universal life and variable life are similar is that both A. have a fixed minimum cash value B. permit loans against the cash value C. have flexible premiums D. are considered securities

Permit loans against the cash value

A client who purchased a variable life insurance policy 15 months ago has suffered a stroke. In addition, he has developed adult onset diabetes. When receiving treatment for the stroke, he was diagnosed with lung cancer. He has decided to convert his variable policy to a whole life policy. Which of the following statements is correct? 1. He will not be able to convert to a whole life insurance policy because his health has deteriorated to such a severe level. 2. The new policy will bear the same issue date and age as the original policy. 3. The face amount must remain the same. 4. The premium will be rated because his health has taken a marked turn for the worse.

The new policy will bear the same issue date and age as the original policy and the face amount must remain the same

The policyholder could surrender a whole life insurance policy and choose from all the following except A. transferring the insurance coverage to another person. B. surrendering the policy and taking the cash value. C. using a Section 1035 exchange to purchase an immediate annuity. D. ceasing payment of premiums and using the accumulated cash value to provide an extended term-life policy.

Transferring the insurance coverage to another person

Alix purchased a single premium deferred fixed annuity over 10 years ago. She would be subject to taxation on the deferred earnings in which of these cases? A. When the earnings are withdrawn B. When the earnings are credited to her account C. If she enters into a Section 1035 exchange D. When she dies

When the earnings are withdrawn

When a variable annuity is annuitized A. the number of accumulation units redeemed each payment period remains constant B. the number of annuity units redeemed each payment period remains constant C. the number of accumulation units redeemed each payment period varies based upon the performance of the separate account D. the number of annuity units redeemed each payment period varies based upon the performance of the separate account

The number of annuity units redeemed each payment period remains constant

Which of the following is designed primarily as a retirement vehicle to help protect contract owners from a decline in purchasing power? A. Variable annuities B. Retirement income life insurance C. Life-paid-up-at-age-65 life insurance D. Flexible premium fixed annuity

Variable annuities

An individual purchased a variable life insurance policy 10 years ago. The policy has a $500,000 face amount which has grown to $525,000 due to the performance of the selected separate account subaccounts. Three years ago, the insured borrowed $50,000 against the policy which has never been repaid. The effect of this is that the total death benefit today is A. $450,000. B. $525,000. C. $475,000. D. $500,000.

$475k

Which of the following statements are true of a variable annuity? 1. The number of annuity units is fixed when payout begins. 2. The value of accumulation units is fixed at purchase. 3. The monthly annuity payment is a variable amount. 4. The annuity payments are not subject to income taxes.

The number of annuity units is fixed when payout begins and the monthly annuity payment is a variable amount

When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed? A. As capital gains based on an exclusion ratio B. As ordinary income based on LIFO accounting C. As capital gains based on LIFO accounting D. As ordinary income based on an exclusion ratio

As ordinary income based on an exclusion ratio

A registered representative presenting a variable life insurance policy proposal to a prospect must disclose which of the following about the insured's rights of exchange of the VLI policy? A. Federal law requires the insurance company to allow the insured to exchange the VLI policy for a form of permanent life insurance issued by the same company for 2 years with no additional evidence of insurability. B. Within the first 18 months, the insured may exchange the VLI policy for either a whole life or universal variable policy issued by the same company with no additional evidence of insurability. C. The insured may request that the insurance company exchange the VLI policy for a traditional whole life policy issued by the same company within 2 years. The insurance company retains the right to have medical examinations for underwriting purposes. D. The insurance company will allow the insured to exchange the VLI policy for a traditional whole life policy within 45 days from the date of the application or 10 days from policy delivery, whichever is longer.

Federal law requires the insurance company to allow the insured to exchange the VLI policy for a form of permanent life insurance issued by the same company for 2 yrs w/ no additional evidence of insurability

Annuity companies offer a variety of purchase options to owners. Which of the following definitions regarding these annuity options is not true? A. An immediate annuity allows an investor to deposit a lump sum with the insurance company; payout of the annuitant's benefits starts immediately (usually within 60 days). B. An accumulation annuity allows the investor to accumulate funds in a separate account prior to investment in an annuity. C. A periodic payment deferred annuity allows a person to make periodic payments over time; the contract holder can invest money on a monthly, quarterly, or annual basis. D. A single premium deferred annuity is a lump sum investment, with payment of benefits deferred until the annuitant elects to receive them.

An accumulation annuity allows the investor to accumulate funds in a separate account prior to investment in an annuity

An individual purchasing a flexible premium variable life contract should know which of the following? 1. Timing and amount of premiums generally are discretionary. 2. The death benefit will generally be higher than that of a comparable whole life policy. 3. The face amount is fixed at the beginning of the contract. 4. The performance of the separate account directly affects the policy's cash value.

Timing and amount of premiums generally are discretionary and the performance of the separate account directly affects the policy's cash value