Chapter 6-7

All of the following statements regarding a Tax Sheltered Annuity (TSA) are true EXCEPT • Income derived from the TSA is received income tax-free • TSA's are available to public school employees • Contributions to the TSA are tax-deductible • Interest earned by TSA is tax deferred

All of these statements regarding TSA's are true EXCEPT Income derived from the TSA is received income tax-free! Upon retirement, payments received by employees from the accumulated savings in tax-sheltered annuities are treated as ordinary income.

Which of the following statements about noncontributory employee group life insurance is FALSE? • A minimum number of employees is required to participate • All eligible employees must be covered • No evidence of insurability required • Must have conversion rights

The correct answer is "A minimum number of employees is required to participate". Noncontributory employee group life insurance plans must cover ALL eligible employees at all times.

Which provision is NOT a requirement in a group life policy? • Conversion • Grace period • Incontestable period • Accidental

The correct answer is "Accidental". An AD&D provision is not required in a group life policy.

P is a forty year old woman and would like to purchase an annuity that will provide a lifetime income stream beginning at age sixty. Which of the following did she NOT buy? • A straight life deferred annuity • A straight life annuity • An immediate annuity • A deferred annuity

The correct answer is "An immediate annuity". An immediate annuity is designed to make its first benefit payment to the annuitant at one payment interval from the date of purchase.

What group term life feature permits an individual to depart from the group and continue to be covered without providing evidence of insurability? • Entire contract • Owner's rights • Nonforfeiture options • Conversion

The correct answer is "Conversion". The conversion privilege allows an individual to leave the group term plan and continue his or her insurance without providing evidence of insurability.

N, age 50, recently bought an annuity that will pay a guaranteed $2,000/month at age 70 for life. What type of annuity did N purchase? • Fixed Period • Fixed Deferred • Fixed Immediate • Fixed Variable

The correct answer is "Fixed Deferred". A Fixed Deferred annuity pays out a fixed amount for life starting at a future date.

T, age 70, withdraws cash from a profit-sharing plan and purchases a Straight Life Annuity. What will this transaction provide? • Income for a fixed period stated in the contract • Income that cannot be outlived by the owner • Inflation protection • Tax-free income

The correct answer is "Income that cannot be outlived by the owner". A Straight Life Annuity will provide an income that the insured cannot outlive.

K is an annuitant currently receiving payments. If she were to die before receiving payments equal to the correct value, a beneficiary will continue receiving payments until an amount equal to the contract value has been paid. This is called a(n) • Installment Refund annuity • Joint Refund annuity • Straight Refund annuity • Equal Value annuity

The correct answer is "Installment Refund annuity". An installment Refund annuity promises that if the annuitant dies before receiving payments equal to the correct value, the payments will be continued to a beneficiary until an amount equal to the contract value has been paid.

K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this? • Variable Life • Adjustable Life • Graded Premium Whole Life • Modified Whole Life

The correct answer is "Modified Whole Life". The type of policy in this situation is a Modified Whole Life.

When an employee is terminated, which statement about a group term life conversion is true? • Employee must convert group term life coverage into an individual term life policy • Employee must provide evidence of insurability for conversion • Policy proceeds will be paid if the employee dies during the conversion period • Policy proceeds will NOT be paid if the employee dies during the conversion period

The correct answer is "Policy proceeds will be paid if the employee dies during the conversion period". An individual must apply for individual coverage within 31 days after the date of group coverage termination. An individual is covered under the group policy during the conversion period.

Under federal tax laws, what is the tax treatment for an employer providing $50,000 of a contributory group Term Life plan to all its eligible employees? • Portion of the premiums paid for by the employer may be a tax deduction • Portion of the premiums paid for by the employee may be a tax deduction • Portion of the death proceeds are taxable to the beneficiary • Portion of the death proceeds are taxable to the estate

The correct answer is "Portion of the premiums paid for by the employer may be a tax deduction". In a contributory plan, the employer may file a tax deduction for its share of the premium costs.

A(n) annuity pays benefits based on units rather than stated dollar amounts. • Deferred • Variable • Immediate • Unit

The correct answer is "Variable". A Variable annuity pays benefits based on units rather than specific dollar amounts.

T purchased a $100,000 single premium, Straight Life annuity 5 years ago. He has received monthly payments since the inception of the annuity. If T dies, the insurance company • does NOT have to make any further payments • MUST make full payments to the beneficiary • MUST make half-payments to the beneficiary • has the option to continue making payments based on what has already been paid out

The correct answer is "does NOT have to make any further payments". With a Straight Life Annuity, the insurer does not have to make further payments after the annuitant dies.

The type of annuity that can be purchased with one monetary deposit is called a(n): • Single Deposit annuity • Single Premium annuity • Fixed annuity • Immediate annuity

The correct answer is "immediate annuity". An immediate annuity is purchased with one monetary deposit.

An employee with $25,000 group term life coverage was recently fired. This employee's group coverage may be converted to a: • $125,000 individual whole life policy • $25,000 modified whole life policy • $25,000 individual term life policy • $25,000 individual whole life policy

The correct answer is 4$25,000 individual whole life policy". In this situation, a terminated employee may convert to a $25,000 individual whole life policy.