life and health Ch. 4
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 difference between the premiums paid ($15,000) and the cash value ($18,000) is $3,000
in order to qualify for coversion 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 yeard
the minimum number of credits required for partially insured status for Social Security disability benefits is
6 credits
what is the required # of participants in a contributory group?
75%
Which of the following is NOT true of life settlements? A The seller must be terminally ill. B They could be used for a key person coverage. C They could be sold for an amount greater than the current cash value. D They involve insurance policies with large face amounts.
A The seller must be terminally ill.
All of the following are characteristics of a group life insurance plan EXCEPT A There is a requirement to prove insurability on the part of the participants. B The participants receive a Certificate of Insurance as their proof of insurance. C A minimum number of participants is required in order to underwrite the plan. D The cost of the plan is determined by the average age of the group.
A There is a requirement to prove insurability on the part of the participants.
All of the following benefits are available under Social Security EXCEPT A Welfare benefits. B Old-age and retirement benefits. C Disability benefits. D Death benefits.
A Welfare benefits.
Who is a third-party owner?
A policyowner who is not the insured
To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters? A 4 credits B 6 credits C 10 credits D 40 credits
B 6 credits
When an employee terminates coverage under a group insurance policy, coverage continues in force A Until the employee notifies the group insurance provider that coverage conversion policy is issued. B For 31 days. C For 60 days. D Until the employee can obtain coverage under a new group plan.
B For 31 days.
Which of the following is an IRS qualified retirement program for the self-employed? A 401(k) B Keogh C Split Dollar D Buy and Sell Agreement
B Keogh
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? Premiums are taxable to the employee. B Premiums are not tax deductible as a business expense. C Premiums are tax deductible by the key employee. D Premiums are tax deductible as a business expense.
B Premiums are not tax deductible as a business expense.
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a A Rollover. B Settlement option. C Nontaxable exchange. D Nonforfeiture option.
B Settlement option.
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? A 1 B 3 C 5 D 10
C 5
SIMPLE Plans require all of the following EXCEPT A No more than 100 employees. B Employees must receive a minimum of $5,000 in annual compensation. C At least 1,000 employees. D No other qualified plan can be used.
C At least 1,000 employees.
Which of the following is an eligibility requirement for all Social Security Disability Income benefits? A Have permanent kidney failure B Be at least age 50 C Have attained fully insured status D Be disabled for at least 1 year
C Have attained fully insured status
All of the following would be eligible to establish a Keogh retirement plan EXCEPT A A sole proprietor of film development store with no employees. B A hair dresser who operates her business at her house. C The president and employee of a family corporation. D A sole proprietor of a service station who employs four employees.
C The president and employee of a family corporation.
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%
What is the number of credits required for fully insured status for Social Security disability benefits? A 4 B 10 C 30 D 40
D 40
Life insurance death proceeds are A Taxable to the extent that they exceed 7.5% of the beneficiary's adjusted gross income. B Taxed as a capital gain. C Taxed as ordinary income. D Generally not taxed as income.
D Generally not taxed as income.
Employer contributions made to a qualified plan A. May discriminate in favor of highly paid employees. B. Are after-tax contributions. C. Are taxed annually as salary. D. Are subject to vesting requirements.
D. Are subject to vesting requirements.
all of the following are examples of third party ownership of a life insurance policy EXCEPT a. an insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan b. an insured couple purchases a life insurance policy insuring the life of their grandson c. a company purchases a life insurance policy on their manager, who is an important part of the operation d. when an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company
a. an insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan
what type of insurance is most commonly used for group plans?
annually renewable term
group insurance is written as
annuity renewable term insurance
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
an employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? a. the premium for individual coverage will be based upon the insured's attained age b. the insured may choose to covert to term or permanent individual coverage c. the insured would not be able to provide insurability for a conversion policy d. the insured may convert coverage to an individual policy within 31 days
b. the insured may choose to covert to term or permanent individual coverage
an employee is insured under her employer's group life plan. if she terminates her group coverage, which of the following statements is incorrect? a. the insured may convert coverage to an individual policy within 31 days b. the premium for an individual coverage will be based upon the insured's attained age c. the insured may choose to convert to term or permanent individual coverage d. the insured would not need to prove insurability for a conversion policy
c. the insured may choose to convert to term or permanent individual coverage
all of the following are requirements of a qualified plan EXCEPT: a. the plan must be communicated to all employees b. the plan must be for the exclusive benefits of the employees and their beneficiaries c. the plan must be permanent, written, and legally binding d. the plan must provide an offset for social security benefits
d. the plan must provide an offset for social security benefits
in group life policies, a certificate of insurance is given to
each insured person
in group insurance, the master contract is for the the employer and certificates of insurance are for
individual insureds
Benefits available under Social Security
old age and retirement death disability
if an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may
require evidence of insurability
an employee has group life insurance through her employer. after 5 years, she decided 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
what is the tax advantage of a qualified retirement plan?
the earnings in the plan accumulate tax deferred
which of the following best defines the "owner" as it pertains to life settlement contracts?
the policy owner of the life insurance policy
what 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
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
what is the name of the insured who enters into a viatical settlement?
viator
The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unavailable to lower-echelon employees. This plan would be funded with before-tax corporate dollars, and it does not meet government approval standards. This annuity plan is A A nonqualified annuity plan. B An executive annuity plan. C Subject to government standards. D Illegal.
A A nonqualified annuity plan
If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is A Fully insured. B Partially insured. C Correctly insured. D Permanently insured.
A Fully insured.
An employee is joining a group insurance plan. In order to avoid having to prove insurability, what must the employee do? A Join during the open enrollment period B Provide medical records to the insurer C Sign a statement of continued good health D Nothing: proof of insurability is never required in group policies
A Join during the open enrollment period
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an A Modified endowment contract. B Accelerated benefit policy. C Endowment. D Nonqualified annuity.
A Modified endowment contract.
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
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 A HR-10 (Keogh Plan). B Section 457 Deferred Compensation Plan. C 403(b) plan. D 401(k) plan.
A HR-10 (Keogh Plan).
Which of the following statements about group life is correct? A The cost of coverage is based on the ratio of men and women in the group. B The premiums are higher than in an individual policy because there is no medical exam. C The group sponsor receives a Certificate of Insurance. D The policy can be converted to an individual term insurance policy.
A The cost of coverage is based on the ratio of men and women in the group.
Which of the following is INCORRECT concerning a noncontributory group plan? A The employees receive individual policies. B They help to reduce adverse selection against the insurer. C They require 100% employee participation. D The employer pays 100% of the premiums.
A The employees receive individual policies.
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT A The policy is owned by the company. B Any type of insurance policy may be used. C The employer pays a bonus to a selected employee to fund the policy. D It is considered a nonqualified employee benefit.
A The policy is owned by the comp
employer contributions made to a qualified plan
Are subject to vesting requirements
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 The entire living benefit is considered taxable income. B A portion of the benefit up to a limit is tax free; the rest is taxable income. C Principal is tax free, but interest is taxed. D The entire benefit will be received tax free.
B A portion of the benefit up to a limit is tax free; the rest is taxable income.
All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT A Employee and employer contributions are not counted as income to the employee for income tax purposes. B At distribution, all amounts received by the employee are tax free. C Employer contributions are tax deductible as ordinary business expense. D Funds accumulate on a tax-deferred basis.
B At distribution, all amounts received by the employee are tax free.
All of the following are personal uses of life insurance EXCEPT A Cash accumulation. B Buy-sell agreement. C Survivor protection. D Estate creation.
B Buy-sell agreement.
A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a A Stock redemption plan. B Cross-purchase plan. C Key person plan. D Split-dollar plan.
B Cross-purchase plan.
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) A Aleatory contract. B Executive bonus. C Key person policy. D Fraternal association.
B Executive bonus.
Which of the following is an example of liquidity in a life insurance contract? A The money in a savings account B The cash value available to the policyowner C The death benefit paid to the beneficiary D The flexible premium
B The cash value available to the policyowner
Which of the following is INCORRECT concerning a noncontributory group plan? A The employer pays 100% of the premiums. B The employees receive individual policies. C They help to reduce adverse selection against the insurer. D They require 100% employee participation.
B The employees receive individual policies.
All of the following are characteristics of a group life insurance plan EXCEPT A The cost of the plan is determined by the average age of the group. B There is a requirement to prove insurability on the part of the participants. C The participants receive a Certificate of Insurance as their proof of insurance. D A minimum number of participants is required in order to underwrite the plan.
B There is a requirement to prove insurability on the part of the participants.
Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings? A 75% of employee's contributions are taxed. B They are tax deferred until withdrawn. C Taxes must be paid in full. D Employer's matching contribution can be 50% of employee's salary.
B They are tax deferred until withdrawn.
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 Coverage cannot be converted when an individual leaves the group. B Premiums are determined by age, occupation, and individual underwriting. C 100% participation of members is required in noncontributory plans. D Each member covered receives a policy.
C 100% participation of members is required in noncontributory plans.
The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unavailable to lower-echelon employees. This plan would be funded with before-tax corporate dollars, and it does not meet government approval standards. This annuity plan is A Subject to government standards. B Illegal. C A nonqualified annuity plan. D An executive annuity plan.
C A nonqualified annuity plan.
A life insurance policy used to fund an agreement that contractually establishes the intent of someone to purchase a business upon the insured business owner's death is a A Split-dollar plan. B Stock redemption plan. C Buy-sell agreement. D Key person policy.
C Buy-sell agreement.
What does "liquidity" refer to in a life insurance policy? A The policyowner receives dividend checks each year. B The insured receives payments each month in retirement. C Cash values can be borrowed at any time. D The death benefit replaces the assets that would have accumulated if the insured had not died.
C Cash values can be borrowed at any time.
A key person insurance policy can pay for which of the following? A Workers compensation B Hospital bills of the key employee C Costs of training a replacement D Loss of personal income
C Costs of training a replacement
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? A Board of directors is the owner, and the board of directors pays the premium. B Company is the owner, and the company pays the premium. C Executive is the owner, and the executive pays the premium. D Company is the owner, but the executive pays the premium.
C Executive is the owner, and the executive pays the premium.
All of the following are business uses of life insurance EXCEPT A Funding against financial loss caused by the death of a key employee. B Funding business continuation agreements. C Funding against company's general financial loss. D Compensating executives.
C Funding against company's general financial loss.
All of the following are business uses of life insurance EXCEPT A Funding against financial loss caused by the death of a key employee. B Funding business continuation agreements. C Funding against company's general financial loss. D Compensating executives.
C Funding against company's general financial loss.
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
What is the main purpose of the Seven-pay Test? A It ensures that the policy benefits are paid out in 7 years. B It guarantees the minimum interest. C It determines if the insurance policy is a MEC. D It requires level premium payments for 7 years.
C 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 Risk exposure B Morbidity C Life expectancy D Mortality rate
C Life expectancy
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an A Endowment. B Nonqualified annuity. C Modified endowment contract. D Accelerated benefit policy.
C Modified endowment contract.
All of the following are characteristics of group life insurance EXCEPT A Individuals covered under the policy receive a certificate of insurance. B Certificate holders may convert coverage to an individual policy without evidence of insurability. C Premiums are determined by the age, sex and occupation of each individual certificate holder. D Amount of coverage is determined according to nondiscriminatory rules.
C Premiums are determined by the age, sex and occupation of each individual certificate holder.
Which type of retirement account does not require the owner to start taking distributions at age 72? A Standard IRA B Traditional IRA C Roth IRA D Nonqualified IRA
C Roth IRA
An IRA purchased by a small employer to cover employees is known as a A Defined contribution plan. B 403(b) plan. C Simplified Employee Pension plan. D 401(k) plan.
C Simplified Employee Pension plan.
All of the following employees may use a 403(b) plan for their retirement EXCEPT A A part-time classroom aide. B The vice president of a charitable organization. C The CEO of a private corporation. D A school bus driver.
C The CEO of a private corporation.
Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? A The key employee is the owner and beneficiary. B The key employee is the owner and the employer is the beneficiary. C The employer is the owner and beneficiary. D The employer is the owner and the key employee is the beneficiary.
C The employer is the owner and beneficiary.
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.
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 Principal is tax free, but interest is taxed. B The entire benefit will be received tax free. C The entire living benefit is considered taxable income. D A portion of the benefit up to a limit is tax free; the rest is taxable income.
D A portion of the benefit up to a limit is tax free; the rest is taxable income.
Who can make a fully deductible contribution to a traditional IRA? A Anybody: all IRA contributions are fully deductible regardless of income level B Someone making contributions to an educational IRA C A person whose contributions are funded by a return on investment D An individual not covered by an employer-sponsored plan who has earned income
D An individual not covered by an employer-sponsored plan who has earned income
All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT A Employer contributions are tax deductible as ordinary business expense. B Funds accumulate on a tax-deferred basis. C Employee and employer contributions are not counted as income to the employee for income tax purposes. D At distribution, all amounts received by the employee are tax free.
D At distribution, all amounts received by the employee are tax free.
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 scheduled rate. D Attained age.
D Attained age.
What does "liquidity" refer to in a life insurance policy? A The death benefit replaces the assets that would have accumulated if the insured had not died. B The policyowner receives dividend checks each year. C The insured receives payments each month in retirement. D Cash values can be borrowed at any time.
D Cash values can be borrowed at any time.
A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a A Key person plan. B Split-dollar plan. C Stock redemption plan. D Cross-purchase plan.
D Cross-purchase plan.
Which of the following is true regarding taxation of dividends in participating policies? A Dividends are taxable only after a certain amount is accumulated annually. B Dividends are taxable in some life insurance policies and nontaxable in others. C Dividends are considered income for tax purposes. D Dividends are not taxable.
D Dividends are not taxable.
If taken as a lump sum, life insurance proceeds to beneficiaries are passed A Tax-deductible. B Part tax-free and part taxable. C Without interest. D Free of federal income taxation.
D Free of federal income taxation.
All of the following are business uses of life insurance EXCEPT A Compensating executives. B Funding against financial loss caused by the death of a key employee. C Funding business continuation agreements. D Funding against company's general financial loss.
D Funding against company's general financial loss.
If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy? A It is not considered to be taxable. B It is taxable only if it exceeds the amounts paid for premiums by 50%. C It is automatically taxable. D It is only taxable if the cash value exceeds the amount paid for premiums.
D It is only taxable if the cash value exceeds the amount paid for premiums.
In a single employer group plan, what is the name of the policy issued to the employer? A Certificate of insurance B Employer-insurer contract C Certificate of authority D Master contract
D Master contract
What is the official name for the Social Security program? A Social Insurance Program B Defined Benefit Retirement Insurance C Qualified Pension Plan D Old Age Survivors Disability Insurance
D Old Age Survivors Disability Insurance
The premiums paid by the employer in a business life insurance policy are A Tax deductible by the employee. B Always taxable to the employee. C Never taxable to the employee. D Tax deductible by the employer.
D Tax deductible by the employer
All of the following would be different between qualified and nonqualified retirement plans EXCEPT A Taxation of withdrawals B Taxation of contributions C IRS approval requirements D Taxation on accumulation
D Taxation on accumulation
Which of the following statements about group life is correct? A The premiums are higher than in an individual policy because there is no medical exam. B The group sponsor receives a Certificate of Insurance. C The policy can be converted to an individual term insurance policy. D The cost of coverage is based on the ratio of men and women in the group.
D The cost of coverage is based on the ratio of men and women in the group.
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 a reduced death benefit to the beneficiary. B The insurer will pay the death benefit minus one month's premium. C The insurer will pay nothing because the employee has terminated his group insurance and hasn't started the individual one. D The insurer will pay the full death benefit from the group policy to the beneficiary.
D The insurer will pay the full death benefit from the group policy to the beneficiary.
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT A Any type of insurance policy may be used. B The employer pays a bonus to a selected employee to fund the policy. C It is considered a nonqualified employee benefit. D The policy is owned by the company.
D The policy is owned by the company.
Which of the following is NOT true of life settlements? A They could be used for a key person coverage. B They could be sold for an amount greater than the current cash value. C They involve insurance policies with large face amounts. D The seller must be terminally ill.
D The seller must be terminally ill.
How are contributions to a tax-sheltered annuity treated with regards to taxation? A They are never taxed. B They are taxed as income for the employee. C They are taxed as income for the employee, but are tax free upon withdrawal. D They are not included as income for the employee, but are taxable upon distribution.
D They are not included as income for the employee, but are taxable upon distribution.
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
What is the name of the insured who enters into a viatical settlement? A Third party B Contingent C Viatical broker D Viator
D Viator
all of the following statements are true regarding group insurance EXCEPT: a. participants in the policy each receive a policy b. the group sponsor is the policyholder c. participants in the group insurance plan are issued certificates of insurance d. small groups such as labor unions are eligible for group insurance
a. participants in the policy each receive a policy
what term 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