Chapter 5

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

survivor protection

Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings?

they are tax deferred until withdrawn

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?

viatical settlement

All of the following benefits are available under social security EXCEPT

welfare benefits

Which of the following types of insurance policies would perform the function of cash accumulation?

whole life

All of the following are characteristics of a group life insurance plan EXCEPT

There is a requirement to prove insurability on the part of the participants.

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 key person insurance?

To lessen the risk of financial loss because of the death of a key employee

Social security was created to provide all of the following benefits EXCEPT

Unemployment income

What is the name of insured who enters into a viatical settlement

Viator

Which of the following statements regarding the taxation of modified endowment contracts is FALSE?

Withdrawals are not taxable

What type of life insurance is most commonly used for group plans?

annually renewable term

All of the following statements are true regarding tax-qualified annuities EXCEPT

employer contributions are not tax deductible

If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is

fully insured

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?

life expectancy

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?

profit-sharing plan

All of the following are general requirements of a qualified plan EXCEPT

The plan must provide an offset for social security benefits.

Which of the following best defines the "owner" as it pertains to life settlement contracts

The policyowner of the life insurance policy

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.

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?

$3,000

What percent of a company's employees must take part in a noncontributory group life plan?

100%

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?

100% participation of members is required in noncontributory plans.

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 years

The minimum number of credits required for partially insured status for social security disability benefits is

6 credits

Who is a third-party owner?

A policyowner who is not the insured

All of the following are examples of a third party ownership of a life insurance policy EXCEPT

An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.

All of the following are examples of third-party ownership of a life insurance policy EXCEPT

An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.

Employer contributions made to a qualified plan

Are subject to vesting requirements

SIMPLE Plans require all of the following EXCEPT

At least 1,000 employees.

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

Attained age

All of the following are requirements of eligibility for social security disability income benefits EXCEPT

Being age 65

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?

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

In a life settlement contract, whims does the life settlement broker represent?

The owner

Which of the following is true regarding taxation of dividends in participating policies?

Dividends are not taxable.

In group life policies, individual certificates are given to Each policyholder Each insured Each applicant The insurance agent

Each insured (Each employee eligible to participate in a group plan fills out an enrollment card and is given a certificate of coverage. This certificate summarizes the coverage terms and explains the employee's rights under the group contract.)

If an employee wants to join group life insurance coverage outside of the open enrollment period, what would the employee have to provide?

Evidence of insurability

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?

Executive is the owner, and the executive pays the premium

When an employee terminates coverage under a group insurance policy, coverage continues in force

For 31 days.

In life insurance policies, cash value increases

Grow tax deferred.

Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose

HR-10 (Keogh Plan)

Which of the following is an eligibility requirement for all social security disability income benefits?

Have attained fully insured status

An insured has a modified endowment contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true?

He will have to pay a penalty if he is younger than 59 1/2

What is the main purpose of the seven-pay test

It determines if the insurance policy is an MEC.

Which of the following is TRUE of a qualified plan

It has a tax benefit for both employer and employee.

If a retirement plan or annuity is "qualified", this means

It is approved by the IRS

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.

An employee is joining a group insurance plan. In order to avoid having to prove insurability, what must the employee do?

Join during the open enrollment period

I'm a single employer group plan, what is the name of the policy issued to the employer?

Master contract

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is

Modified Endowment Contract

What is the official name for the social security program

Old-Age, Survivors, and Disability Insurance

All of the following statements are true regarding group insurance EXCEPT

Participants in the policy each receive a policy

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.

What is the primary purpose of a 401(k) plan

Provide retirement income

Which type of retirement account does not require the owner to start taking distributions at age 72?

Roth IRA

An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy?

She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan.

Which of the following would be considered a non-qualified retirement plan?

Split-dollar plan

All of the following would be different between qualified and non qualified retirement plans EXCEPT

Taxation on accumulation

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then

The benefit is received tax free

Which of the following is an example of liquidity in a life insurance contract

The cash value available to the policyowner

Which of the following statements about group life is correct?

The cost of coverage is based on the ratio of men and women in the group.

All of the following statements concerning an employer sponsored nonqualified retirement plan are true EXCEPT

The employer can receive a current tax deduction for any contributions made to the plan