Ch. 4 Taxes, Retirement, and Other Insurance Concepts

Which of the following is NOT an example of a business use of Life Insurance? A. Key person B. Workers Compensation C. Buy-sell Funding D. Executive bonuses

B. Workers compensation

Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT? A. 100% participation of members is required in noncontributory plans B. Each member covered receives a policy C. Coverage cannot be converted when an individual leaves the group D. Premiums are determined by age, occupation, and individual underwriting

A. 100% participation of members is required in noncontributory plans

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? A. Premiums are not tax deductible as a business expense B. Premiums are tax deductible by the key employee C. Premiums are tax deductible as a business expense D. Premiums are taxable to the employee

A. Premiums are not tax deductible as a business expense

In a life settlement contract, whom does the life settlement broker represent? A. The owner B. The insurer C. The beneficiary D. The life settlement intermediary

A. The owner

An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize? A. Viatical settlement B. Estate liquidation C. Nonpayment of Premium D. Change of beneficiary

A. Viatical settlement

In terms of Social Security, what is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called? A. Accumulation period B. Blackout period C. Nonpayment Interval D. Latent interval

B. Blackout period

What is the main purpose of the Seven-Pay test? A. It guarantees the minimum interest B. It determines if the insurance policy is a MEC C. It requires level premium payments for 7 years D. It ensures that the policy benefits are paid out in 7 years

B. It determines if the insurance policy is a MEC

Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors? A. Morbidity B. Life expectancy C. Mortality rate D. Risk exposure

B. Life expectancy

All of the following are characteristics of group life insurance EXCEPT A. Certificate holders may convert coverage into an individual policy without evidence of insurability B. Premiums are determined by age, sex, and occupation of each individual C. Amount of coverage is determined according to nondiscriminatory rules D. Individuals covered under the policy receive a certificate of insurance

B. Premiums are determined by age, sex, and occupation of each individual

In which of the following instances would the premium be tax deductible? A. Premiums paid by an employer on the life of a key person B. Premiums paid by an employer on a $30,000 group term life insurance plan for employees C. Premiums paid by an individual on his/her own life insurance D. Premiums paid by a mother on her son's policy

B. Premiums paid by an employer on a $30,000 group term life insurance plan for employees

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as A. Juvenile protection provision B. Survivor protection C. Life planning D. Survivorship insurance

B. Survivor protection

When an employee terminates coverage under a group insurance policy, coverage continues in force A. Until the employee can obtain coverage under a new group plan B. Until the employee notifies the group insurance provider that coverage conversion policy is issued C. For 31 days D. For 60 days

C. For 31 days

In a direct transfer, how is money transferred from one retirement plan to a traditional IRA A. From the participant to the new plan B. From the original plan to the original custodian C. From trustee to trustee D. From trustee to the participant

C. From trustee to trustee

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income A. Neither principal nor interest B. Principal only C. Interest only D. Both principal and interest

C. Interest only

Which of the following is true of a qualified plan? A. It may discriminate in favor of highly paid employees B. It may allow for unlimited contributions C. It has a tax benefit for both employer and employee D. It foes not need to have a vesting schedule

C. It has a tax benefit for both employer and employee

The premiums paid by the employer in a business life insurance policy are A. Always taxable to the employee B. Never taxable to the employee C. Tax deductible by the employer D. Tax deductible by the employee

C. Tax deductible by the employer

Which of the following is an example of liquidity in a life insurance contract? A. The flexible premium B. The money in a savings accoint C. The cash value available to the policyowner D. The death benefit paid to the beneficiary

C. The cash value available to the policyowner

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen? A. The insurer will pay the death benefit minus one month's premium B. The insurer will pay nothing because the employee has terminated his group insurance and hasn't started the individual one C. The insurer will pay the full death benefit from the group policy to the beneficiary D. The insurer will pay a reduced death benefit to the beneficiary

C. The insurer will pay the full death benefit from the group policy to the beneficiary

Which of the following best defines the "owner" as it pertains to life settlement contracts? A. A fiduciary for the contract B. The insurance provider C. The policyowner of the life insurance policy D. A financial entity that sponsors the transaction

C. The policyowner of the life insurance policy

Which of the following is NOT true of life settlements? A. They could be sold for an amount greater than the current cash value B. They involve insurance policies with large face amounts C. The seller must be terminally ill D. They could be used for a key person coverage

C. The seller must be terminally ill

Which of the following statements regarding the taxation of Modified Endowment Contracts is false? A. Policy loans are taxable distributions B. Accumulations are tax deferred C. Withdrawals are not taxable D. Distributions before age 59 1/2 incur a 10% penalty on policy gains

C. Withdrawals are not taxable

An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his A. Experience Rating B. Group rate C. Insurer's schedule rate D. Attained age

D. Attained age

What percentage of a company's employees must take part in a noncontributory group life plan A. 0% B. 25% C. 75% D. 100%

D. 100%

An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called? A. 401(k) plan B. Tax-sheltered account plan C. HR 10 plan D. Profit sharing plan

D. Profit sharing plan

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

D. Someone who works 400 hours per year

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then A. The benefit is subject to the exclusionary rule B. The IRS has no jurisdiction C. The benefit is received as taxable income D. The benefit is received tax free

D. The benefit is received tax free

Who is the owner and who is the beneficiary on a Key person Life insurance Policy? A. The employer is the owner and the key employee is the beneficiary B. The key employee is the owner and beneficiary C. The key employee is the owner and the employer is the beneficiary D. The employer is owner and beneficiary

D. The employer is owner and beneficiary

All of the following are true of Key Person insurance EXCEPT A. There is no limitation on the number of key employee plans in force at any one time B. The employer is the owner, payor, and the beneficiary of the policy C. The key employee is the insured D. The plan is funded by permanent insurance only

D. The plan is funded by permanent insurance only

Which of the following is the best reason to purchase life insurance rather than annuities? A. To liquidate a sum of money over a period of years B. To create regular income payments C. To liquidate a sum of money over a lifetime D. To create an estate

D. To create an estate