A.D. Banker - Life Insurance Prep - Chapter 6

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

A. 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.

Who are the parties in a third-party life insurance ownership situation? A. The policyowner, the insured, and the insurer B. The policyowner, the insurer, and the beneficiary C. The policyowner, the insured, and the benefiicary D. The insured, the insurer, and the beneficiary

A. The policyowner, the insured, and the insurer The three parties involved in third-party ownership are the policyowner, the insured, and the insurer. The beneficiary is not a party to the contract.

Which of the following is a likely outcome if a buy-sell agreement in a two person partnership is not in place when one of the the partners dies? A. The surviving spouse of the deceased becomes the other partner B. Partnership transfer taxes are due within 9 months C. The agreement will need to go through the probate process D. The value of the business will increase

A. The surviving spouse of the deceased becomes the other partner Without a Buy-Sell Agreement in place, the surviving spouse of the deceased partner will likely step in as the new partner.

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

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

Social Security pays an eligible surviving spouse (or minor child) a one-time benefit upfront the death of a covered worker. Which of the following is the amount of that benefit? A. $250 B. $355 C. $255 D. $350

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

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 business partner buying a life insurance policy on him / herself D. A policy owned by one person insuring the life of another person

D. 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

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

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

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. $1,800,000 B. $150,000 C. $450,000 D. $900,000

B. $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).

With a Contributory Group life Plan, what percentage of the employees must participate? A. At least 50% B. At least 75% C. At least 60% D. A full 100%

B. At least 75% A Contributory Plan is one in which the participants pay all or a portion of the premiums. The high enrollment percentage, 75%, helps to minimize the risk of adverse selection.

Regarding Social Security survivor benefits, when the youngest child reaches 16, the widow's/windower's _____ period begins and continues until the surviving (non-remarried) spouse reaches age 60. A. Elimination B. Blackout C. Waiting D. Probationary

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

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

B. 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.

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

B. Facility of Payment Clause A Facility of Payment Clause allows the insurer to pay the death benefit to a relative or anyone it deems entitled in the absence of a designated beneficiary.

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

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

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

With a Noncontributory Group Life Plan, what percentage of eligible employees must participate? A. 50% B. 90% C. 100% D. 75%

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.

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. 25% B. 75% C. 100% D. 50%

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.

Each of the following pertaining to group life insurance in true, except: A. Group life insurance is term insurance B. The insured receives a Certificate of Insurance C. Group members are required to prove insurability D. The group sponsor receives a Master Policy

C. Group members are required to prove insurability The primary benefit of group coverage is that proof of insurability on the part of the group participant is not required.

To help protect again ______, group plans have probationary period set by the group sponsor. A. Lazy and unmotivated employees B. Inventory shrinkage and bad hires C. Preexisting conditions and immediate claims D. High employee turnover

C. Preexisting conditions and immediate claims To help protect against preexisting conditions and immediate claims, group plans have a probationary period set by the group sponsor.

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

In a group insurance plan, the insurer issues a Master Policy to: A. Each participant's dependent B. Each participant C. The Plan Sponsor D. Each participant's spouse

C. The Plan Sponsor In a group insurance plan, the insurer issues a Master Policy to the Plan Sponsor and each participant receives a Certificate of Insurance covering the participant and (if offered) his / her spouse and dependents.

The waiting period from the start of a disability to be eligible to apply for social security disability is: A. 3 months B. 6 months C. 12 months D. 5 months

D. 5 months The waiting period to apply for Social Security is 5 full months from the start of a qualified disability.

Individuals who do not enroll during the initial enrollment period are considered ____ enrollees. A. Restricted B. Terminated C. Prohibited D. Late

D. Late Individuals who do not enroll during the initial enrollment period are considered late enrollees and must provide evidence of insurability unless they wait until the next open enrollment period.