AD Banker Ch. 6

The lowest monthly Social Security retirement benefit would occur if started at age _______. A 60 B 62 C 65 D 67

B 62 Full Social Security Retirement Benefits are paid when workers reach their full retirement age (FRA). Reduced benefits can start at age 62 and only survivor benefits start at age 60.

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

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

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

A 60 The blackout period ends at age 60.

Key Person Life Insurance is written for the benefit of the ______. A Employee B Employer C Employer's retirement plan D Employee's spouse

B Employer The most valuable assets any company has are its employees. The company has the right to protect itself against loss as it would in the case of any other asset. Even though the employer has an insurable interest in the key employee, the employee must still consent to being covered.

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

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

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 Probationary B Elimination C Blackout D Waiting

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

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

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

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

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

If enrolled in an accredited elementary or secondary school, a covered child can continue receiving Survivor Benefits up to what age? A 19 B 21 C 16 D 18

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

To be fully insured for Social Security, generally a person must have worked and paid into the Social Security system for a minimum of ______ years. A 40 B 20 C 10 D 30

C 10 To be fully insured for Social Security, the requirement is to accumulate 40 credits or 10 years of work paying social security taxes. A maximum of four credits may be earned in one calendar year of employment.

Industrial insurance is also known as: A Surplus lines B Ordinary C Home service D Group

C Home service Industrial insurance is also known as Home Service.

Buy-Sell agreements are used for all of the following entities, except: A Large Public Corporations B Partnerships C Closely held businesses D Sole Proprietorships

A Large Public Corporations Large corporations are not candidates for Buy-Sell agreements. The Buy-Sell agreement is for much smaller entities.

All are correct statements concerning noncontributory group life, except: A Premiums are calculated by underwriting each individual in the group B If employer-sponsored, an employee must work a minimum number of hours per week to be eligible C The Conversion Period is 31 days D Only the plan sponsor is responsible for paying premiums

A Premiums are calculated by underwriting each individual in the group Since no proof of insurability is required on the part of the plan participants, the insurer looks at the group collectively, factoring a number of variables.

Why were industrial policies written? A To offset funeral expenses B To supplement retirement income C To replace lost income due to the insured's death D To provide an additional source of college funds

A To offset funeral expenses Industrial policies normally are written to reduce funeral costs.

In a credit life plan, who is the beneficiary? A The creditor B The wife of the insured C The husband of the insured D The children of the insured

A The creditor

With a Noncontributory Group Life Plan, what percentage of the employer's employees must participate? A 75% B 90% C 100% D 50%

C 100% A Noncontributory Group Life Plan is one in which the participant does not pay premiums. State law requires that 100% of eligible employees are covered. The insurer can be certain that all employees will enroll and it will not be subject to adverse selection.

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

C 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 primary purpose of key person life insurance is to: A Provide the business with money to pay vested retirement benefits to the heirs of the employee as a lump sum B Provide the business with money to recruit and train a replacement employee C Protect the business against the death of any employee earning at least $50,000 per year D Provide the family of the deceased employee with up to ten years of the employee's lost future income

B Provide the business with money to recruit and train a replacement employee

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

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

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

C 60 The blackout period ends at age 60.

How are employee FICA taxes collected? A The employer makes a one-time payment at the end of the tax year including extensions B The employee mails it in to the IRS quarterly C The employee mails it in to the Social Security Administration monthly D The employer withholds the employee's tax and pays it along with the employer's portion

D The employer withholds the employee's tax and pays it along with the employer's portion.

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 $350 D $255

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

In order for a worker to be qualified for all of the benefits available from Social Security how many credits must be earned? A 30 credits B 1 credit for each year of work between age 20 and age 40 C 6 credits in the last 13 quarters D 40 credits

D 40 credits To be eligible for SS all benefits and be considered fully insured, a worker must have earned 40 credits.

Which of the persons or entities listed below would have an insurable interest in an unrelated individual? A Co-worker on a fellow co-worker B Neighbor on a next door neighbor C A Doctor on one of his/her patients D An employer on a Key Employee

D An employer on a Key Employee Insurable interest exists when there is a reasonable expectation that the beneficiary will benefit from the continued life of the insured, or experience a loss at the death of the insured.

All of the following are characteristics of Franchise Insurance, except: A Certificates of Insurance are issued B The employer handles most of the administrative responsibilities, which makes franchise less expensive than individual insurance C Premiums are paid by the employer or shared with the employee D The group must be together for a reason other than purchasing cheaper insurance

A Certificates of Insurance are issued No Master Policy or Certificates of Insurance are issued as compared to formal group insurance. Although a group is being written, it is through individual policies.

All of the following are characteristics of Group Life Insurance, except: A Group is typically written utilizing Permanent Insurance B Most states require a minimum number of enrollees at date of issue C Claims are not contestable after an employee has been covered for 2 years D Evidence of insurability is usually not required

A Group is typically written utilizing Permanent Insurance Group Insurance is typically written on a Renewable Term basis. However, some insurers do make Permanent Insurance available.

Industrial insurance is also known as: A Home service B Surplus lines C Group D Ordinary

A Home service Industrial insurance is also known as Home Service.

XYZ Corporation has 59 employees. The company decides to purchase a group life policy and will pay the total premium. What percentage of employees must participate under this arrangement? A 50% B 75% C 100% D 25%

C 100% The question describes a Noncontributory Plan as the employer (XYZ Corporation) is paying the entire premium, thus 100% participation (all 59 employees) is required.

Group life insurance is a contract between what parties? A The sponsor and the insureds B The insurer and the insured's beneficiaries C The sponsor and the insurer D The insureds and the insurer

C The sponsor and the insurer Only the plan sponsor receives a policy, the Master Policy from the insurer, which are the two parties to the contract.

Industrial life insurance is typically sold in face amounts of : A $10,000 to $20,000 B $5,000 multiples C Up to $50,000 D $1,000 or less

D $1,000 or less

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 $355 B $250 C $350 D $255

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

When an underwriter evaluates the risks presented with a particular group life application, which of the following is considered the most important? A The plan sponsor's credit rating B The overall health of the group C The sales volume of the employer D Group size, turnover, average age and purpose of the group

D Group size, turnover, average age and purpose of the group The cost of a typical group plan is a function of a number of variables, most notably average age and size of the group, industrial classification, financial stability of the sponsor, and claims experience if the group is of sufficient size.

Which of the following policies is issued without medical exams required? A Term Life B Whole Life C Universal Life D Industrial Life

D Industrial Life Individual policies are issued to low-income workers without a medical examination requirement.

Buy-Sell agreements are used for all of the following entities, except: A Sole Proprietorships B Partnerships C Closely held businesses D Large Public Corporations

D Large Public Corporations Large corporations are not candidates for Buy-Sell agreements. The Buy-Sell agreement is for much smaller entities.

All of the following are advantages of having a Buy-Sell Agreement in place, except: A The agreement is legally enforceable B Premiums are tax-deductible C It is an immediate and automatic method of transferring the deceased's interest D The business value is pre-agreed upon

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

L is no longer eligible for the employer's $50,000 group life insurance plan. L dies 28 days later without sending in the required conversion paperwork. What will their beneficiaries receive? A $50,000, less any premiums due B $50,000 C Nothing, since L has not paid the required premium D Nothing, since L is no longer in the group plan

A $50,000, less any premiums due The conversion period is also a grace period. In the event a terminated or ineligible employee dies during the conversion period, whether they were going to elect individual coverage or not, a death claim will be paid by the group policy, less the premium due for the benefit.

The lowest monthly Social Security retirement benefit would occur if started at age _______. A 62 B 65 C 60 D 67

A 62 Full Social Security Retirement Benefits are paid when workers reach their full retirement age (FRA). Reduced benefits can start at age 62 and only survivor benefits start at age 60.

The proceeds from a _________ plan provide the necessary funds to recruit, hire, and train a replacement employee. A Group B Key employee C Entity D Cross purchase

B Key employee Key employee life insurance plans provide the funds to recruit, hire, and train a replacement employee.

Buy-sell agreement life insurance premiums are: A Deductible and proceeds are income tax free B Not deductible and proceeds are income tax free C Not deductible and proceeds are not income tax free D Deductible and proceeds are not income tax free

B Not deductible and proceeds are income tax free Premiums are not deductible, and policy proceeds are received income tax-free.

All of the following regarding credit life are true, except: A Usually the creditor pays the premium B The coverage is on the life of the debtor C It can be either in the form of individual or group coverage D The form of coverage is normally decreasing term insurance

A Usually the creditor pays the premium Usually the individual debtor pays the premium.

When an underwriter evaluates the risks presented with a particular group life application, which of the following is considered the most important? A The plan sponsor's credit rating B The overall health of the group C Group size, turnover, average age and purpose of the group D The sales volume of the employer

C Group size, turnover, average age and purpose of the group The cost of a typical group plan is a function of a number of variables, most notably average age and size of the group, industrial classification, financial stability of the sponsor, and claims experience if the group is of sufficient size.

An employee who is covered under an employer group life insurance plan may assume all of the following are TRUE of the opportunity of conversion, except: A No proof of insurability is required B The premiums are greater than what was being paid for the group life insurance C The policy to which the employee converts is individual permanent insurance D The employee chooses which type of insurance to convert to

D The employee chooses which type of insurance to convert to The greatest advantage of group life conversion is that evidence of insurability is not required. The insurance company requires conversion to a permanent policy, which will be more costly.

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

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

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

A 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.

________ Insured under Social Security means that a worker has at least 6 work credits during the 13-quarter period ending with the quarter in which the worker dies, becomes disabled, or reaches retirement age. A Fully B Under C Partially D Currently

D Currently Currently Insured under Social Security means a worker has at least 6 work credits during the 13-quarter period ending with the quarter in which the worker dies, becomes disabled, or reaches retirement age.

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

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

ll of the following are generally the main business uses of life insurance, except: A To cover the unexpected death of a business partner B To provide funds for the continuation of the business C To cover the unexpected death of a key employee D To provide funds for the deceased's heirs

D To provide funds for the deceased's heirs Business uses of insurance often mirror individual needs - 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.

Which of the following policies is issued without medical exams required? A Industrial Life B Universal Life C Term Life D Whole Life

A Industrial Life Individual policies are issued to low-income workers without a medical examination requirement.

An employee who is covered under an employer group life insurance plan may assume all of the following are TRUE of the opportunity of conversion, except: A The premiums are greater than what was being paid for the group life insurance B The employee chooses which type of insurance to convert to C No proof of insurability is required D The policy to which the employee converts is individual permanent insurance

B The employee chooses which type of insurance to convert to The greatest advantage of group life conversion is that evidence of insurability is not required. The insurance company requires conversion to a permanent policy, which will be more costly.

A key person is typically all of the following, except: A Respected by customers, creditors, suppliers, or vendors B More highly paid C Part of the management team D Not directly involved in sales, production, or service

D Not directly involved in sales, production, or service Key persons are employees whose contributions have a significant impact on the revenue and profitability of the company, especially in small businesses. They are typically: part of the management team, more highly paid, respected by customers, creditors, suppliers, and vendors, and have direct responsibilities for sales, production, or service.

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

A 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.

The Social Security Survivor Benefit is computed using which of the following? A FICA B PIA C FUTA D ERISA

B PIA The Social Security Survivor Benefit is based on the worker's Primary Insurance Amount (PIA), which is determined by cumulative earnings.

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 will be converting her group term benefit to an individual term benefit C If she waits until the conversion period has closed, she will lose the ability to convert her coverage D She has 31 days of eligibility to convert to the private plan without having to prove insurability

B 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 grandparent purchases a life insurance policy on a granddaughter this is an example of _________. A Two Party Ownership B Third-Party Ownership C Key Person Insurance D Wealth Transfer

B Third-Party Ownership When someone other than the insured is the policyowner, then this is referred to as third-party ownership.

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 3 B 9 C 6 D 1

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.

Examples of third-party ownership include all of the following, except: A A business partner buying a policy on another business partner B A parent buying a policy on one of their children C A person buying a policy on themselves D A business buying a policy on a key employee

C A person buying a policy on themselves Third-party ownership is when an applicant buys a policy on someone other than themselves.

Which of the following best describes Third-Party Ownership? A A key employee buying a life insurance policy on him/herself B A policy owned by the insured C A policy owned by one person insuring the life of another person D A business partner buying a life insurance policy on him/herself

C 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.

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

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

A Buy-Sell Agreement A Provides the business with funds in the event of the death of a key person who is not an owner B Specifies the conditions and requirements that are necessary to sell the business to a third party if a business owner dies unexpectedly C Describes which relatives of a business owner have the right to purchase that person's interest in the business D Assures the continuation of the business by providing benefits to the surviving business partners to buyout a business partner's interest in the event one of them dies unexpectedly

D Assures the continuation of the business by providing benefits to the surviving business partners to buyout a business partner's interest in the event one of them dies unexpectedly

The Master Policy for a group life plan goes to the employer. What does a participating employee receive? A Claim form package B Copy of the Master Policy C Change of beneficiary form D Certificate of Insurance

D Certificate of Insurance

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

D 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.

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

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

ABC Enterprises is worth $300,000. There are 3 shareholders and each shareholder is an equal owner of the company. If they establish an entity buy-sell agreement, the entity would have to buy policies in the amount of $____________ on each of the owners. A $100,000 B $50,000 C $75,000 D $150,000

A $100,000 If ABC Enterprises is worth $300,000 and each shareholder is an equal owner of the company, then the company would buy three $100,000 life insurance policies, one on the life of each owner. The policy would be owned by the company. The company would be named as the beneficiary. At death of one of the owners, the company would have the funds necessary to buy the deceased's stock in the company.

The Social Security blackout period for surviving spouses begins when the youngest child reaches age ______, and ends when the surviving spouse reaches age ______. A 16/60 B 18/60 C 16/62 D 18/65

A 16/60 When the youngest child reaches age 16, the widow's/widower's blackout period begins. It continues until a surviving (non-remarried) spouse reaches age 60.

An agreement that establishes a price with the intent to purchase the assets of a business should one of the parties to the agreement predeceases the other is called a ___________. A A Business Plan B A Key Person Plan C Buy-Sell Agreement D A Group Plan

C Buy-Sell Agreement A Buy-Sell Agreement is a legal and binding contract. A method of valuing the business is critical for the buy/sell to be effective and carried out in a timely manner. In an Entity Purchase Plan, the company is the beneficiary. In a Cross Purchase Plan, each partner is the owner and beneficiary of policies purchased on the other partners.

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

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

The arrangement under a Buy-Sell Agreement in which each party purchases insurance on the life of his/her partner(s) is called a: A Entity Purchase Plan B Split-Dollar Plan C Deferred Compensation D Cross Purchase Plan

D Cross Purchase Plan A Cross Purchase Plan is used when each party to a Buy-Sell Agreement purchases life insurance on the other(s).

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

Which of the following concerning Noncontributory Group Life insurance is FALSE? A An employer pays 75% of the premium B The employee pays none of the premium C 100% participation is required D No evidence of insurability is required on the part of the participant

A An employer pays 75% of the premium To minimize the effects of adverse selection, a noncontributory group life policy must cover 100% of the eligible employees. The employer pays 100% of the premium.

Open enrollment periods are offered on a(n) ______ basis that allows individuals to enroll without evidence of insurability or to make changes. A Annual B Quarterly C Bi-annual D Semi-annual

A Annual Open enrollment periods are offered on an annual basis that allows individuals to enroll without evidence of insurability or to make changes.

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 Probationary C Elimination D Waiting

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

If a buy-sell agreement were not in place, all of the following could happen, except: A Surviving business owner(s) may suffer a loss of income B The estate transfer may be sped up due to emergency business liquidation C Share(s) of ownership transfer to surviving relatives D Asset reduction due to forced liquidation

B The estate transfer may be sped up due to emergency business liquidation The estate transfer may be delayed due to forced business liquidation.

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 If it is a contributory plan, not all covered employees will pay their share of the premiums B The insurer can increase the premium at renewal C Those converting to an individual plan are most likely the least insurable D The group rate will go down based upon an increase in the company's credit rating

B 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.

When is a cross purchase buy-sell agreement plan used? A When insurability is an issue B When parties purchase life insurance on each other C When the entity does not have the funds necessary to pay for policies on each of the owners D When individual tax deductions are needed

B When parties purchase life insurance on each other A Cross Purchase Plan is used when parties purchase life insurance on each other. At the death of one of the parties, policy proceeds are used to purchase that person's interest in the business from his/her heirs. Each partner owns insurance on each of the other partner(s).

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

D 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 primary categories of Social Security Benefits provided are: A Retirement, Death, and Survivor B Retirement, Disability, and Unemployment C Retirement, Survivors, and FICA D Retirement, Death, and Cost of Living

A Retirement, Death, and Survivor The Social Security System provides Retirement, Death, and Survivor benefits.

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

D 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.

The advantage of an insurance funded buy-sell agreement is: A The surviving spouse becomes the new partner in the firm B The estate transfer may be delayed due to forced business liquidation C Assets are forced to be sold to generate cash to pay for the business interest of the deceased partner D It is a legally enforceable agreement, which pre-establishes the value of the business, and provides the funds for an efficient method of transferring the deceased's business interest

D It is a legally enforceable agreement, which pre-establishes the value of the business, and provides the funds for an efficient method of transferring the deceased's business interest Some of the advantages of having such an agreement: it is legally enforceable, the value of the business is previously agreed upon, it is an immediate and automatic method of transferring the deceased's interest due to readily available funds.

Which of the following is the least important when it comes to determining the cost of the group life insurance plan? A Size of the group B The nature of the work involved C The group' claims D The health of each member of the group

D The health of each member of the group Since evidence of insurability is not usually required, the health of each member of the group is not used when determining premiums of the group.

A grandparent purchases a life insurance policy on a granddaughter this is an example of _________. A Wealth Transfer B Two Party Ownership C Key Person Insurance D Third-Party Ownership

D Third-Party Ownership When someone other than the insured is the policyowner, then this is referred to as third-party ownership.

With credit life, who is normally the policyowner and beneficiary? A The creditor B The debtor's heirs C The debtor D The insurer

A The creditor The creditor is normally both the policyowner and the beneficiary.

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

A $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).

Which of the following is NOT an example of Third-Party Ownership? A A business owner buying a life policy on his own life B A parent purchasing a policy on the life of his or her child C A policy used to fund a Buy-Sell Agreement D A Key Employee Policy

A A business owner buying a life policy on his own life A business owner buying a life policy on his own life is only a two-party transaction. In the majority of individual policies, the insured and the owner is the same person. Any time they differ, Third-Party Ownership exists.

The Social Security System is funded through: A Federal Insurance Contribution Act (FICA) taxes B State income taxes C The U.S. Treasury D Internal Revenue Service (IRS) income taxes

A Federal Insurance Contribution Act (FICA) taxes 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. Self-employed individuals pay an amount equal to the total of an employer and employee payment.

A key person is typically all of the following, except: A Not directly involved in sales, production, or service B Respected by customers, creditors, suppliers, or vendors C More highly paid D Part of the management team

A Not directly involved in sales, production, or service Key persons are employees whose contributions have a significant impact on the revenue and profitability of the company, especially in small businesses. They are typically: part of the management team, more highly paid, respected by customers, creditors, suppliers, and vendors, and have direct responsibilities for sales, production, or service.

How is the funding for Social Security provided? A Through FICA taxes that are paid by both employers and employees B Through FICA taxes that are paid by employers C Through FICA taxes that are paid by employees D Through the PIA

A Through FICA taxes that are paid by both employers and employees Both the employer and employee fund Social Security through paying FICA taxes. Self-employed persons pay the entire amount.

All of the following are generally the main business uses of life insurance, except: A To provide funds for the deceased's heirs B To cover the unexpected death of a key employee C To cover the unexpected death of a business partner D To provide funds for the continuation of the business

A To provide funds for the deceased's heirs Business uses of insurance often mirror individual needs - 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.

All are true regarding funding of Social Security, except: A The employer withholds the employee's tax and remits it with the employer's portion B Actuarial value of contributions is related to actuarial value of benefits C Self-employed individuals pay both the employer and employee amounts D The funds are kept in a trust fund and invested in government securities

B Actuarial value of contributions is related to actuarial value of benefits The actuarial value of contributions is not related to the actuarial value of benefits.

The underwriter's greatest concern when underwriting a group plan is ____________. A The amount of dividends that may have to be paid out B Adverse selection C The overall cost of the plan D The anticipated investment returns

B Adverse selection The underwriter's greatest concern when underwriting a group plan is adverse selection.

A(n)__________ plan is when business partners buy life insurance policies on one another. A Entity B Cross Purchase C Industrial D Partnership

B Cross Purchase A cross purchase plan calls for the partners to buy life insurance policies on one another. An entity plan has the business entity buy life insurance plans on the business owners.

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

B 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.

What is the purpose of the facility of payment clause? A The clause allows the beneficiary to determine how and when the proceeds will be paid out B It allows the insurer to pay out the death benefit to a person deemed entitled when there is no designated beneficiary C It allows the insurer to determine if the beneficiary should receive a lump sum or monthly installments D The insurer can determine if they would like to send the beneficiary a check, a checkbook, or wire the proceeds into their bank account

B It allows the insurer to pay out the death benefit to a person deemed entitled when there is no designated beneficiary The Facility of Payment Clause allows the Insurer to pay to a relative or anyone it deems entitled to the benefits in the absence of a designated beneficiary.

All of the following are true about a buy/sell agreement, except: A It contractually establishes the intent to buy and sell a business interest B It can only be funded with term life insurance C It contractually establishes a price for the business interest D It provides the funds necessary to carry out the terms of the agreement

B It can only be funded with term life insurance The agreement contractually 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 other participant(s). It is funded with life insurance to assure that the funds are available to carry out the agreement, but it can be funded with permanent or term insurance.

All are correct statements concerning noncontributory group life, except: A If employer-sponsored, an employee must work a minimum number of hours per week to be eligible B Premiums are calculated by underwriting each individual in the group C Only the plan sponsor is responsible for paying premiums D The Conversion Period is 31 days

B Premiums are calculated by underwriting each individual in the group Since no proof of insurability is required on the part of the plan participants, the insurer looks at the group collectively, factoring a number of variables.

To be included in an employer-sponsored group plan, an employee must be employed full time by any of the following, except: A An active partner B The immediate group C A silent partner D A subsidiary of the firm

C A silent partner An employee must be a full-time employee in the immediate group, a subsidiary firm, or an active partner to be eligible for coverage.

Which of the persons or entities listed below would have an insurable interest in an unrelated individual? A Co-worker on a fellow co-worker B Neighbor on a next door neighbor C An employer on a Key Employee D A Doctor on one of his/her patients

C An employer on a Key Employee Insurable interest exists when there is a reasonable expectation that the beneficiary will benefit from the continued life of the insured, or experience a loss at the death of the insured.

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

C 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.

Who is generally named as the beneficiary when a credit life insurance policy is issued? A Debtor B Spouse of insured C Creditor D Estate of the insured

C Creditor When a credit life insurance policy is issued, the creditor is normally named as the beneficiary in order to be able to recover the outstanding debt when the insured dies.

Which of the following is a characteristic of a contributory plan? A Dependents of eligible employees must pay 75% of the premium B Employers must enroll 100% of eligible employees C Eligible employees pay a portion of the premium D Part-time employees must be eligible to participate

C Eligible employees pay a portion of the premium

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

C 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.

____________ individuals pay a FICA tax amount equal to the total of an employer and employee payment. A Employed B Part-time employed C Self-employed D Unemployed

C Self-employed 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. Self-employed individuals pay an amount equal to the total of an employer and employee payment.

Benefits that may be received monthly under Social Security include all of the following, except: A Survivor's benefits for dependent children until age 18 (19 if still in school) B Retirement benefits for workers as early as age 62 C Survivor's benefits for widows and widowers no earlier than age 62 D Retirement benefits for spouses of workers as early as age 62

C Survivor's benefits for widows and widowers no earlier than age 62 Benefits that may be received monthly under Social Security include retirement benefits as early as age 62 for workers and their spouses, and survivor's benefits for children up to age 18 (19 if still in school) and for widows and widowers as early as age 60.

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

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

All of the following are true regarding credit life, except: A The coverage begins when the debt is incurred B The debtor is entitled to cancel the coverage upon paying off the debt C The amount of coverage can exceed the debt D The proceeds must be used to satisfy the outstanding debt

C The amount of coverage can exceed the debt The amount of insurance benefit must not exceed the total amount of indebtedness.

All of the following are true regarding credit life, except: A The debtor is entitled to cancel the coverage upon paying off the debt B The proceeds must be used to satisfy the outstanding debt C The amount of coverage can exceed the debt D The coverage begins when the debt is incurred

C The amount of coverage can exceed the debt The amount of insurance benefit must not exceed the total amount of indebtedness.

All of the following are true regarding industrial life insurance, except: A Debit agents are also known as home service agents B The method of settlement upon death is lump sum C The grace period is 1 week D The policies are marketed house to house by debit agents

C The grace period is 1 week The grace period is 4 weeks in length with the method of settlement upon death being lump sum.

Group life insurance is a contract between what parties? A The sponsor and the insureds B The insureds and the insurer C The sponsor and the insurer D The insurer and the insured's beneficiaries

C The sponsor and the insurer Only the plan sponsor receives a policy, the Master Policy from the insurer, which are the two parties to the contract.

A grandparent purchases a life insurance policy on a granddaughter this is an example of _________. A Key Person Insurance B Wealth Transfer C Third-Party Ownership D Two Party Ownership

C Third-Party Ownership When someone other than the insured is the policyowner, then this is referred to as third-party ownership.

In a group life insurance plan, the employee has control over which of the following? A Mode of premium payments B Choice of insurance company C Type of policy D Choice of beneficiary

D Choice of beneficiary