Ch.6 - Markets and Social security

Examples of third-party ownership include all of the following, except:

An adjustable life policy bought by Sam on Sam- Third-party ownership is when an applicant buys a policy on someone other than themselves.

A Buy-Sell Agreement:

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- A Buy-Sell agreement is funded with life insurance and is designed to protect the business and assure continuation by providing benefits to the surviving business partners to buy out the deceased partner share of the business.

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.

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

Which of the following is NOT true regarding a group insurance plan?

Proof of insurability --- it is usually not required under a group plan.

Group life insurance is a contract between what parties?

Sponsor & insurer, Only the plan sponsor receives a policy, the Master Policy from the insurer, which are the two parties to the contract.

Which of the following types of buy-sell agreements provides for a business to purchase a life insurance policy on each business partner?

The Entity Buy Sell Plan is a contract in which the business entity buys a life insurance policy on each of the owners. The Cross Purchase Plan requires each business partner to purchase a policy on the other business partners. The Stock Redemption Agreement is not for business partners, but for shareholders in a closely held corporation. The Key Employee Plan is not a buy-sell agreement.

Which of the following meets the criterion for being a natural group for group life insurance purposes?

To be eligible for a group plan, the group must be a natural group, meaning it was formed for a purpose other than for procuring or reducing the cost of insurance.

A(n)__________ plan is when business partners buy life insurance policies on one another.

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.

As part of Social Security benefits, a one-time payment of $_______ may be made paid to a surviving spouse after a taxpayer's death.

Death benefits paid to the family of a covered worker is a one-time payment of $255 made after the taxpayer's death. This benefit may be paid to a surviving spouse or minor children if they meet certain requirements.

Which of the following is a characteristic of a contributory plan?

In a contributory group insurance plan, eligible employees pay a portion of the premium. Part-time employees are usually not eligible. Dependents of an eligible employee do pay a required percentage of premium, the amount varies as determined by the employer. A contributory plan requires at least 75% participation of eligible employees. Noncontributory group plans require 100% participation.

Social Security monthly retirement benefits are determined using a formula that calculates which of the following?

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

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.

$100,000

With a Contributory Group Life Plan, what percentage of the employees must participate?

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.

With a Noncontributory Group Life Plan, what percentage of the employer's employees must participate?

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.

In those instances in which the death of a valued employee could cause financial hardship for a company, the company might acquire additional funds through which type of coverage?

Key person - The business would likely purchase a Key Person (Key Employee) Policy on the life of the valued employee to offset the expenses and financial losses due to the death of that employee.

In an employer-sponsored group life insurance plan, the employee has control over which of the following?

Naming a beneficiary- In an employer-sponsored group life insurance plan, the employer determines the type of coverage, amount of coverage, and premium options, but naming the beneficiary is the employee's right.

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?

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.

To have Currently Insured status under Social Security, a worker must have at least _____ quarter credits during the 13-quarter period ending with the quarter in which the worker dies, becomes disabled, or reaches retirement age.

To have Currently Insured status under Social Security, a worker must have at least 6 quarter credits during the 13-quarter period ending with the quarter in which the worker dies, becomes disabled, or reaches retirement age.

All of the following are generally the main business uses of life insurance, except:

To provide funds for the deceased's heirs

Entity Plan

Under this plan, a business entity enters into an agreement in which it is obligated to purchase the deceased owner's interest. The entity typically buys life insurance policies on each of the owners. The entity would then name itself as the beneficiary of each policy. The death benefit of the policy would be equal to the predetermined purchase price which would be spelled out in the buy-sell agreement. Upon death of one of the owners, the entity would use the death proceeds to purchase that owner's interest.

Cross Purchase Plan

Used when the partners of a business purchase life insurance on each other. At the death of one of the partners, 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 partners.

In an employer-sponsored group life insurance plan, the employee's description of benefits is referred to as the:

certificate of insurance - The employees in a group life plan receive a certificate of insurance that describes the benefit, identifies the insurance company and policy and certificate numbers, and provides information about changing beneficiaries or filing a claim.

An advantage of key person life insurance is to:

Provide the owner of the policy with funds to recruit and train a replacement employee upon the death of an employee who contributes substantially to the success of a company. The death of a key person can negatively impact business operations. The owner of a key person policy is the company and it may use the death benefit proceeds to cover the expense of recruiting, hiring, and training a replacement, which may take months to accomplish.