Chapter 3 Quiz
The automatic premium loan provision is activated at the end of the
Grace period.
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
Cash Option
All of the following are characteristics of group life insurance EXCEPT
Premiums are determined by the age, sex and occupation of each individual certificate holder.
In a life settlement contract, whom does the life settlement broker represent?
The Owner
Traditional IRA contributions are tax deductible based on which of the following?
The Owners Income
What is the other term for the cash payment settlement option?
Lump sum
Life income joint and survivor settlement option guarantees
Income for 2 or more recipients until they die.
Which is NOT true about beneficiary designations?
The beneficiary must have insurable interest in the insured.
Which is true about a spouse term rider?
The rider is usually level term insurance.
The Magic Number for Life Insurance
2 YEARS
An insured misstates her age at the time the life insurance application is taken. This misstatement may result in
Adjustment in the amount of death benefit.
A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?
Proof of insurability is not required.
In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?
5
Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?
Any form of life insurance
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?
Cash surrender
When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n)
Executive bonus
J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid?
February 28th, or 10 days after the time the policy is delivered.
If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is
Fully Insired
An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit?
If the primary beneficiary predeceased the insured
If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?
It is only taxable if the cash value exceeds the amount paid for premiums.
Which of the following riders added to a life insurance policy can pay part of the death benefit to the insured to cover expenses incurred in a nursing or convalescent home?
Long-term care
All of the following are true regarding the issuance of group life insurance to labor unions EXCEPT
Members cannot be excluded from coverage on the basis of insurability.
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use?
Paid Up Option
Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option?
Size of each installment
Which of the following statements about a suicide clause in a life insurance policy is TRUE?
Suicide is excluded for a specific period of years and covered thereafter.
Children's riders attached to whole life policies are usually issued as what type of insurance?
Term
Prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact.
The incontestability clause
An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?
The insured may choose to convert to term or permanent individual coverage
A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?
The insured's premiums will be waived until she is 21.
How are contributions to a tax-sheltered annuity treated with regards to taxation?
They are not included as income for the employee, but are taxable upon distribution.
Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner?
Third-party ownership
What is the purpose of a fixed-period settlement option?
To provide a guaranteed income for a certain amount of time
The paid-up addition option uses the dividend
To purchase a smaller amount of the same type of insurance as the original policy.
Which of the following is NOT an example of a business use of Life Insurance?
workers compensation
Which of the following premium payment modes will incur the lowest overall payment?
Annual
Under which of the following circumstances would an insurer pay accelerated benefits?
An insured is diagnosed with cancer and needs help paying for her medical treatment.
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to
Purchase a single premium policy for a reduced face amount.
All of the following are true regarding the guaranteed insurability rider EXCEPT
This rider is available to all insureds with no additional premium.
Which of the following is the required number of participants in a contributory group plan?
75%
If taken as a lump sum, life insurance proceeds to beneficiaries are passed
Free of federal income taxation.
What type of insurance would be used for a Return of Premium rider?
Increasing Term
Which of the following is NOT true regarding a nonqualified retirement plan?
It needs IRS approval
Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?
Insuring clause
An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?
Guaranteed insurability option
Which of the following is true about the premium on the children's rider in a life insurance policy?
It remains the same no matter how many children are added to the policy.
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?
The beneficiary will only receive payments of the interest earned on the death benefit.
In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to
The contingent beneficiary.
The accelerated benefits provision will provide for an early payment of the death benefit when the insured
Becomes terminally ill.
Who can request changes in premium payments, face value, loans, and policy plans?
The Policy Owner.
Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?
They are tax free to terminally ill insured
A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?
If the father is disabled for more than 6 months
What is the official name for the Social Security program?
Old-Age, Survivors, and Disability Insurance
All of the following are general requirements of a qualified plan EXCEPT
The plan must provide an offset for social security benefits.
An absolute assignment is a
Transfer of all ownership rights in a policy.
Social Security was created to provide all of the following benefits EXCEPT
Unemployment Income
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an
Modified endowment contract.
All of the following statements describe a MEWA EXCEPT
MEWAs are groups of at least 3 employers.
The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years?
2 years
An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n)
403(b) Plan (TSA)
An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe?
A reduction of premium
SIMPLE Plans require all of the following EXCEPT
At least 1,000 employees.
The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?
Interest only option
Which of the following statements is TRUE concerning the Accidental Death Rider?
It will pay double or triple the face amount.
The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT
The insured's age at death.
An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?
A portion of the benefit up to a limit is tax free; the rest is taxable income.
If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a
Guaranteed insurability rider.
The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?
Reduction of premium
If an insured continually uses the automatic premium loan option to pay the policy premium,
The policy will terminate when the cash value is reduced to nothing.
The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called
Waiver of premium.
Life insurance death proceeds are
Generally not taxed as income
An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do?
Pay a reduced death benefit
An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had misstated information during the application process. What can they do?
Pay the death benefit
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a
Settlement option
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?
The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called
Guaranteed insurability.
A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the
Revocable beneficiary.
Vision, Inc. employs 500 people. The company offers group life insurance to its employees after 90 days of service. Who is considered the policyholder of the life insurance policies Vision, Inc. offers?
Vision, Inc.
A 60-year-old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true?
The amount of the distribution is reduced by the amount of a 20% withholding tax.
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT
The policy is owned by the company.
Which of the following is NOT true of life settlements?
The seller must be terminally ill
An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer?
$10,000, no tax consequence
The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called
Joint and survivor.
Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?
Term rider
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT
The interest is not taxable since it remains inside the insurance policy.
Which of the following information will be stated in the consideration clause of a life insurance policy?
The amount of premium payment
The interest earned on policy dividends is
Taxable.
Which of the following is TRUE about nonforfeiture values?
They are required by state law to be included in the policy.
Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings?
they are tax deferred until withdrawn
Which of the following describes the tax advantage of a qualified retirement plan?
The earnings in the plan accumulate tax deferred.
Which of the following is INCORRECT concerning a noncontributory group plan?
The employees receive individual policies
Under an extended term nonforfeiture option, the policy cash value is converted to
The same face amount as in the whole life policy.
For a retirement plan to be qualified, it must be designed for the benefit of
employees
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the
Other-insured rider.
In which of the following instances would the premium be tax deductible?
Premiums paid by an employer on a $30,000 group term life insurance plan for employees
All of the following statements concerning dividends are true EXCEPT
Dividend amounts are guaranteed in the policy.
Which of the following best describes fixed-period settlement option?
Both the principal and interest will be liquidated over a selected period of time.
Which of the following statements concerning buy-sell agreements is true?
Buy-sell agreements are normally funded with a life insurance policy