Life Quizzes

Which of the following statements regarding the life insurance needs analysis is correct? Most people do not need an insurance needs analysis because Social Security benefit payments will generally provide most of the ongoing income that surviving dependents might need. Because it includes an estimate of a person's net future earnings, the human life value approach is best suited for determining surviving dependents' ongoing income needs. The human life value approach is best suited for calculating how much ongoing income a surviving family needs. Determining the ongoing income needs of surviving dependents is a critical part of the needs approach to life insurance needs analysis.

Determining the ongoing income needs of surviving dependents is a critical part of the needs approach to life insurance needs analysis. Because a surviving family will need ongoing income as well as lump-sum benefits, additional life insurance may be necessary to cover these expenses, which the needs approach will identify.

All of the following distributions from a qualified plan are exempt from the 10 percent penalty tax on premature distributions, EXCEPT: Distributions made because the participant has medical expenses that exceed 10 percent of his or her adjusted gross income. Distributions made because the participant dies. Distributions made because the participant becomes disabled. Distributions made because the participant needs the funds to pay for homeowners insurance premiums.

Distributions made because the participant needs the funds to pay for homeowners insurance premiums. - A distribution taken to pay homeowners insurance premiums would be subject to the 10 percent penalty tax on premature distributions, if taken before age 59½.

Jenny directed $2,500 of her premium deposit to an aggressive technology stock sub-account. At the time of her original deposit, the value of an accumulation unit in that sub-account was $25. Jenny bought 100 units. Two months later, the value of each of those units dropped to $15. What is Jenny's investment in the technology stock account now? $2,500 $5,000 $1,200 $1,500

1,500: Jenny's investment in the technology stock account would have declined from $2,500 to $1,500 ($15 × 100).

If four business partners enter into a cross-purchase buy-sell agreement, what is the total number of life insurance policies that will be needed to fully insure this agreement? 6 12 4 16

12 - the formula to determine the number of policies is N x (N-1), where N is the number of partners

Frank's first income payment under a variable annuity is $1,950. The value of each accumulation unit in each of the sub-accounts in Frank's contract is $10 at the time of annuitization. How many annuity units does Frank have? 1950 19 225 195

195 - The $1,950 first payment divided by $10 is 195 annuity units. This number stays constant. Frank's contract will forever have 195 annuity units.

Under the "bring-back rule," the death benefit of a life insurance policy that was transferred to a third party by the insured is included in the insured's estate if made within 7 years prior to the insured's death 3 years prior to the insured's death 10 years prior to the insured's death 5 years prior to the insured's death

3 years prior to the insured's death - Policies that were transferred to a third party by the insured within three years prior to death are subject to the bring-back rule.

Alice's deferred annuity imposes a declining surrender charge that begins at 7 percent during the first year of the contract and declines 1 percentage point each year. What would the surrender charge rate be for a full withdrawal in the third year of the same contract? 6 percent 5 percent 4 percent 3 percent

5 percent - If a deferred annuity imposes a 7 percent declining surrender charge during the first year of the contract, it would be 6 percent during the second year and 5 percent during the third year. The surrender charge is typically a percentage of the contract's accumulated value and usually declines at 1 percent per year. In the eighth year, the surrender charge period ends.

Failure to begin taking required minimum distributions (RMDs) from a qualified retirement plan when required can result is a penalty tax equal to: 10 percent of the RMD amount 50 percent of the difference between the amount that was taken and the RMD amount that should have been taken 10 percent of the difference between the amount that was taken and the RMD amount that should have been taken 50 percent of the RMD amount

50 percent of the difference between the amount that was taken and the RMD amount that should have been taken - Failure to take an RMD results in one of the stiffest penalties the IRS imposes. This penalty is 50 percent of the difference between the amount that was taken and the amount that should have been taken.

Which of the following correctly describes the basic tax treatment of deferred annuity death proceeds paid out before the contract is annuitized? A portion of the death benefit, essentially representing the sum of premiums paid into the annuity, is taxable. The full death benefit is taxable. The full death benefit is tax free. A portion of the death benefit, essentially representing the interest earned by the annuity, is taxable.

A portion of the death benefit, essentially representing the interest earned by the annuity, is taxable. - Deferred annuity death benefits are taxable, to the beneficiary, to the extent of the contact's gain.

Which of the following best explains why Section 1035 of the Tax Code does NOT permit a tax-free exchange of an annuity for a life insurance policy? Allowing a tax-free exchange of an annuity for life insurance would result in the life insurance death benefit becoming taxable. Allowing a tax-free exchange of an annuity for life insurance would jeopardize the financial strength of insurance companies. Allowing a tax-free exchange of an annuity for life insurance would enable taxable annuity gain to escape taxation via the life insurance death benefit. The IRS wants to encourage people to own annuities, not life insurance.

Allowing a tax-free exchange of an annuity for life insurance would enable taxable annuity gain to escape taxation via the life insurance death benefit. - Section 1035 has nothing to do with protecting the financial integrity of insurance companies.

Ann is the beneficiary of an annuity owned by Jim (who is also the annuitant). Jim intended to annuitize the contract at retirement but died shortly before retiring. What benefits will Ann receive from the annuity? Ann will receive the contract's funds in a lump sum. Ann's right to any funds will be based on the income payout option that Jim selected. Ann will receive income for life. Ann will receive the annuity's accumulated value and may select a payout option.

Ann will receive the annuity's accumulated value and may select a payout option.

Ann is beneficiary of an annuity owned by Jim, who is also the annuitant. If Jim annuitizes the contract at retirement and dies shortly afterward, what benefits will Ann receive from the annuity? Ann will receive the annuity proceeds. Ann's right to any funds will be based on the income payout option Jim selected. Ann will receive lifetime income. Ann's will receive income for 20 years.

Ann's right to any funds will be based on the income payout option Jim selected. - ann's right to any funds will be based on the income payout option Jim selected

All of the following statements regarding the annuity purchase rate (APR) are correct EXCEPT: The APR is the amount of periodic income provided for every $1,000 of annuitized principal. At any age, the APR is the same for every annuity settlement option. The APR varies by age, gender, and settlement option. For any settlement option involving a life contingency, the APR (and thus the payment amount) is lower for women than men.

At any age, the APR is the same for every annuity settlement option - Different for every age, gender, and settlement option, the APR is the amount of periodic income provided for every $1,000 of annuitized principal.

As tax incentives to set up a qualified employer retirement plan, all the following statements are correct EXCEPT: Benefit distributions are taxed only if withdrawn prior to retirement and are tax free if distributed at retirement. Employee contributions are made with pre-tax dollars. Employer contributions are not taxable to the employee when made. The employee does not have to pay current income tax on earnings building within a qualified plan account.

Benefit distributions are taxed only if withdrawn prior to retirement and are tax free if distributed at retirement. -The earnings that build within a qualified plan are tax-deferred until they are distributed to the participant.

Cindy, age 51, withdraws $15,000 from her 401(k) plan so that she can buy a new boat. All the following statements regarding this are correct, EXCEPT: Cindy can withdraw this money only if it represents her contributions or fully vested employer contributions. Cindy must pay any taxes owed on the withdrawal in the year it is distributed. Cindy can avoid any penalty taxes if she can demonstrate to the IRS that the boat was essential to her financial well-being. Unless Cindy qualifies for an exemption, the distribution will be subject to a 10 percent premature distribution penalty.

Cindy can avoid any penalty taxes if she can demonstrate to the IRS that the boat was essential to her financial well-being. Withdrawals taken from a 401(k) plan before a person reaches age 59½ will be subject to a 10 percent penalty tax. Although tax laws provide some exceptions to this penalty, withdrawing funds to buy a boat does not fall within any of the permitted exceptions.

Jackie Jones is the CFO of Delta Industries and has been instrumental in the company's growth and success over the years. Because of the significant financial loss that it would suffer if she died, Delta purchased a key person insurance policy covering Jackie. All the following statements regarding this scenario are correct EXCEPT: If Jackie dies, the insurer will pay the death benefit to Delta. If Jackie dies, the death benefits can be used to pay Delta's outstanding loans. If Jackie ends her employment, she can demand that Delta surrender the policy and give her the cash value. If Jackie ends her employment, Delta can keep the policy and collect the death benefit when she dies.

If Jackie ends her employment, she can demand that Delta surrender the policy and give her the cash value. - as the owner of the policy, Delta has the exclusive right to determine what it does with the policy

Howard, 33, and Mary, 32, want to fund their 13-year-old daughter's college education. Which of the following is the most appropriate advice about using a deferred annuity for this purpose? Though there may be some merits to the idea, the use of deferred annuity withdrawals to pay for personal expenses like college tuition is forbidden under federal law. Though not the best use for an annuity, it is acceptable because the contract's value accumulates on a tax-deferred basis. It is not recommended. Deferred annuities typically impose surrender charges on funds withdrawn during a contract's early years, and withdrawals from annuities before the owners reach age 59½ may be subject to a tax penalty. It is a good idea. Deferred annuities can be used for almost any purpose that calls for future income.

It is not recommended. Deferred annuities typically impose surrender charges on funds withdrawn during a contract's early years, and withdrawals from annuities before the owners reach age 59½ may be subject to a tax penalty.

How is interest (or investment growth, in the case of variable annuities) that accumulates in a non-corporate-owned deferred annuity taxed? It is taxed when distributed through a withdrawal, but it is tax free if the contract is annuitized. It is taxed in the year credited to the annuity. It is never taxed. It is taxed when it is distributed, whether as a withdrawal or through annuitization.

It is taxed when it is distributed, whether as a withdrawal or through annuitization. - Gain is taxable in the year distributed, whether as a partial withdrawal or through annuitization.

The charge-free withdrawals provision of a deferred annuity contract does which of the following? It permits annuity contract owners to withdraw a specified percentage of the accumulated value annually without imposing a surrender charge. It permits annuity contract owners to withdraw a specified percentage of the accumulated value on a one-time basis without imposing a surrender charge. It exempts deferred annuity withdrawals from surrender charges and penalty taxes as long as the withdrawal does not exceed a specified percentage of the accumulated value. It exempts deferred annuity withdrawals from surrender charges and all taxes as long as the withdrawal does not exceed a specified percentage of the accumulated value.

It permits annuity contract owners to withdraw a specified percentage of the accumulated value annually without imposing a surrender charge - The charge-free withdrawals provision permits annuity contract owners to withdraw a specified percentage (e.g., 10 percent) of the accumulated value annually without a surrender charge.

A deferred annuity would be a suitable recommendation for all the following needs EXCEPT: Celeste, age 48, inherits $200,000 and wants to save it somewhere that will grow tax deferred until she retires in 20 years. Betty, age 48, received a distribution from her previous employer's retirement plan and wants to roll that money into a product that will preserve the tax benefits of the qualified money and provide her with lifetime retirement income when she retires. Joe, age 23, wants to save money for a European vacation in five years. Chris, age 43, wants to set up a nonqualified retirement savings account where the growth is tax deferred even though the premiums are not tax deductible.

Joe, age 23, wants to save money for a European vacation in five years. - Deferred annuities can be used to save for retirement on a tax-deferred basis without having to deal with the contribution and distribution rules associated with IRAs.

Using a deferred annuity for short-term accumulation goals may result in all the following consequences EXCEPT: possible surrender charges upon distribution loss of accrued interest earnings upon distribution a possible penalty tax upon distribution income taxation of the interest earnings upon distribution

Loss of accrued interest earnings upon distribution: While the distributed amount may be subject to surrender charges, income taxation of gain, and a penalty tax, early distribution from a deferred annuity will not result in loss of accrued interest.

Which statement regarding defined contribution qualified plans is correct? The retirement benefit is tax free if distributed at the participant's full retirement age. They are required to distribute benefits in the form of lifetime annuitized payments. Participants are always fully vested in their contributions, but employer contributions may not fully vest for several years. Participants may choose to keep account values undistributed, to be passed on tax free to heirs.

Participants are always fully vested in their contributions, but employer contributions may not fully vest for several years. While participants are always fully vested in their own plan contributions employer contributions can be subject to a vesting schedule,

What is the purpose of the bailout provision of a deferred annuity contract? Permit the owner to annuitize the contract prior to the scheduled annuitization date. Permit the owner to cancel the contract for a full refund of premiums paid, minus any surrender charges, if he or she is unhappy with the contract. Permit the insurer to terminate annuity income payments if the annuitant lives past his or her life expectancy. Permit the owner to withdraw funds at any time, without a surrender charge, if the interest rate falls below a specified level.

Permit the owner to withdraw funds at any time, without a surrender charge, if the interest rate falls below a specified level. - Also called a waiver of penalties provision, the bailout provision allows charge-free withdrawals if the interest rate credited to the accumulated value drops below a specified level.

Which of the following sections of the Tax Code deals with the exchange of life insurance policies and annuities? Section 401(k) Section 501(c)(3) Section 403(b) Section 1035

Section 1035 - Section 1035 of the Tax Code deals with the tax-free exchange of life insurance policies and annuities.

The tax-free exchange of a life insurance policy for an annuity is sometimes called a: Section 401(k) exchange Section 1035 exchange Section 403(b) exchange Section 79 exchange

Section 1035 Exchange - Section 1035 of the Tax Code deals with the exchange of life insurance policies and annuities.

Which of the following best typifies the use of a structured settlement annuity? Shirley was paralyzed in a car accident, and a jury awarded her $2 million, which must be paid to her over a 20-year period. Carl wants to save money in a financial product that will grow on a tax-deferred basis and, at retirement, provide him with income that he cannot outlive. Dick recently retired and wants to take his vested retirement plan money and divide it between a lump-sum payment and payments made over his lifetime. Rachel wants to use a portion of her monthly annuity payment to fund a life insurance policy in which her husband is the beneficiary.

Shirley was paralyzed in a car accident, and a jury awarded her $2 million, which must be paid to her over a 20-year period. - A person injured in an accident or by the actions of another party is often awarded a sum of money through a court settlement. If payments are to be paid over time, a structured settlement annuity is used.

What is the only restriction on naming an annuitant? The annuitant can be a natural or non-natural person. The annuitant must not be related to the owner. The annuitant must be related to the owner. The annuitant must be a natural person.

The annuitant must be a natural person.

Which of the following statements regarding the taxation of death benefits paid from a group life insurance plan is correct? Both the death benefit and interest earned on funds left with the insurer under a settlement option are taxable as ordinary income. Both the death benefit and interest earned on funds left with the insurer under a settlement option are income tax free. The death benefit is income tax free, but interest earned on funds left with the insurer under a settlement option is taxable in the year earned. The death benefit is taxable in the year distributed, but interest earned on funds left with the insurer under a settlement option is tax free.

The death benefit is income tax free, but interest earned on funds left with the insurer under a settlement option is taxable in the year earned. - As is true with individual life insurance, death benefits paid from a group life insurance plan are income tax free. However, interest earned on any settlement option is taxable in the year earned.

If an employer sets up a profit-sharing plan for its employees, which of the following statements is correct? The employer must make substantial and recurring contributions for the plan to maintain its qualified status. Plan participants may contribute to the plan. Contribution amounts are unlimited. Contributions to the plan are directed into a single account covering all plan participants.

The employer must make substantial and recurring contributions for the plan to maintain its qualified status.

If an employer sets up a profit-sharing plan for its employees, which of the following statements is correct? The employer must make substantial and recurring contributions for the plan to maintain its qualified status. Plan participants may contribute to the plan. Contribution amounts are unlimited. Contributions to the plan are directed into a single account covering all plan participants.

The employer must make substantial and recurring contributions for the plan to maintain its qualified status. Profit-sharing plans provide some flexibility for the employer. For example, an employer does not have to make contributions every year. However, to remain qualified, the plan must be maintained with substantial and recurring contributions.

The exclusion ratio applies until all principal in the annuity contract has been paid out. After that, what happens? The full amount of future annuity payments is income tax free. The full amount of future annuity payments is treated as taxable income. The annuity will be paid up, and no further taxes will apply. The annuity contract is canceled.

The full amount of future annuity payments is treated as taxable income. - After that, the full amount of future annuity payments is treated as taxable income.

What do most insurance producers use today to determine a prospective customer's life insurance needs? financial loss analysis cost-benefit analysis the needs approach the human life value approach

The needs approach - Because the human life value approach does not consider a person's unique needs, many insurance buyers and agents today use the needs approach instead. Under the needs approach, an agent examines a person's financial situation in detail.

Which of the following statements about methods for determining life insurance needs is correct? The needs approach takes into account actual family financial goals and objectives. The human life approach takes into account factors such as inflation and changes in the economy. The needs approach seeks to quantify a person's economic value, which becomes the basis of an insurance recommendation. The human life value approach is the most common method used today for determining life insurance needs.

The needs approach takes into account actual family financial goals and objectives. - The biggest drawback to the human life value approach is that it does not consider a family's actual needs and ignores important factors like inflation, rising wages, and changing interest rates.

Which statement about deferred annuity surrender charges is correct? The surrender charge is usually applied to all withdrawals prior to annuitization. The surrender charge usually remains level. The surrender charge percentage typically decreases over the surrender charge period. The insurer may extend the surrender charge period if the annuity owner makes excessive numbers of withdrawals.

The surrender charge percentage typically decreases over the surrender charge period - the surrender charge generally decreases over the term of the surrender charge period, which is a set period following the contract's effective date

Under the life insurance transfer-for-value rule, to what extent are death benefits from a policy sold to another party considered taxable income to the new owner? The taxable portion equals the death benefit minus the policy's cash value at the time of the transfer. The taxable portion equals the death benefit minus the initial purchase price paid by the new owner. The full death benefit is taxable. The taxable portion equals the death benefit minus the sum of the initial purchase price and all subsequent premiums paid by the new owner.

The taxable portion equals the death benefit minus the sum of the initial purchase price and all subsequent premiums paid by the new owner. In a transfer-for-value policy, taxable gain equals the death benefit minus the new owner's cost basis, which is equal to the initial price paid for the policy by the new owner plus all subsequent premiums paid by the new owner.

All of the following statements about deferred annuity surrender charges are correct EXCEPT: The surrender charge is typically a declining percentage of the contract's accumulated value. They are applied any time a withdrawal is made from a deferred annuity other than for annuitization. A deferred annuity owner has rights to his or her contract values but may be forced to pay an insurer-imposed charge for withdrawing them. Most deferred annuities apply them if the owner withdraws from, or surrenders, the contract within a specified period after purchase.

They are applied any time a withdrawal is made from a deferred annuity other than for annuitization. - The surrender charge is typically a declining percentage of the contracts accumulated value.

When received in a lump sum, how are life insurance death benefits commonly taxed to the beneficiary? They are generally tax free to the beneficiary, but only to the extent of the policy's gain. They are generally taxable as income to the beneficiary, but only to the extent of the policy's gain. They are generally fully taxable as income to the beneficiary. They are generally income tax free to the beneficiary.

They are generally income tax free to the beneficiary. - When received in a lump sum, the death benefits from a life insurance policy are generally not taxable to the beneficiary. The question of "gain" is only a concern in transfer-for-value situations.

When do funds in a deferred annuity become the owner's property? They belong to the owner only at annuitization. They belong to the owner only after they have accumulated for the period stated in the contract. They belong to the owner only after the end of the surrender charge period. They are nonforfeitable and always belong to the contract owner.

They are nonforfeitable and always belong to the contract owner. - Funds in a deferred annuity always belong to the contract owner.

Which statement correctly describes a deferred compensation plan? They are nonqualified retirement plans that let executives permanently avoid paying taxes on compensation paid by the employer. They are nonqualified retirement plans that allow executives to delay receiving current compensation until a future time. They are qualified retirement plans that let employees avoid taxes on future income. They are qualified retirement plans that are only available to executives.

They are nonqualified retirement plans that allow executives to delay receiving current compensation until a future time. - under a deferred compensation plan, senior executive employees agree to defer part of their salary or compensation until a future date, typically retirement

Any after-tax contributions Tom makes toward the cost of his group life insurance coverage are treated in which of the following ways? They are subtracted from his taxable income. They are subtracted from the imputed income of the employer's contributions on a dollar-for-dollar basis. They are added to his taxable income. They are added to the imputed income of the employer's contributions on a dollar-for-dollar basis.

They are subtracted from the imputed income of the employer's contributions on a dollar-for-dollar basis - Any after-tax contributions Tom makes toward the cost of his group life coverage are subtracted from the imputed income of the employer's contributions on a dollar-for-dollar basis.

Kelly owns a deferred annuity. What options does she have for using the funds accumulating in her contract before the annuitization date? These values can only be partially withdrawn in an emergency before annuitization. Those values must be fully withdrawn before annuitization. They can be withdrawn, partially or in full, before the contract annuitizes. Those values must be left intact in the contract for future annuitization.

They can be withdrawn, partially or in full, before the contract annuitizes. - these values can be left intact in the contract for future annuitization. Or, they can be withdrawn, partially or in full, before the contract annuitizes

When looking at how much income his family would need if he were to die prematurely, Tom discovered that the Social Security survivors' benefit would not give them enough ongoing income. If securing his family's financial future is his top priority, which of the following statements describes Tom's best response? Tom can buy additional life insurance to cover the amount needed to provide an adequate stream of income upon his death. Tom should try to lower his monthly expenses and increase the amount of Social Security withheld from his paychecks to ensure his family will have enough income if he dies. Tom should apply to the Social Security Administration now to ensure that his family will receive higher benefits if he dies. Tom can arrange to have his 401(k) account distribute its account value to his surviving dependents in monthly payments.

Tom can buy additional life insurance to cover the amount needed to provide an adequate stream of income upon his death.

All the following statements regarding deferred annuity beneficiaries are correct EXCEPT: With annuitant-driven contracts, the annuitant's death before annuitization triggers payment of the contract value to the beneficiary even if the owner is still alive. The distinction between annuitant-driven and owner-driven deferred annuities disappears if the owner and annuitant are the same person. With an annuitant-driven contract, the beneficiary must annuitize the contract immediately if the annuitant dies before annuitization. With owner-driven contracts, the owner's death before annuitization triggers payment of the death benefit to the beneficiary, even if the designated annuitant is still alive.

With an annuitant-driven contract, the beneficiary must annuitize the contract immediately if the annuitant dies before annuitization. - With annuitant-driven contracts, the annuitant's death triggers payment of the contract's value to the beneficiary even if the owner is still alive. The beneficiary may annuitize the contract then or delay annuitization to a later date.

In accordance with Section 1035 of the Tax Code, all the following exchanges are permitted on a tax-free basis EXCEPT: A variable life insurance policy exchanged for a deferred fixed annuity. A deferred annuity exchanged for a whole life insurance policy. A deferred variable annuity exchanged for an immediate fixed annuity. A universal life insurance policy exchanged for a whole life insurance policy.

a deferred annuity exchanged for a whole life insurance policy - Section 1035 prohibits the exchange of any type of annuity product for any type of life insurance product-to do so would enable taxable annuity gain to escape taxation via the life insurance death benefit.

The death of a fully insured worker may result in all the following Social Security benefits being payable EXCEPT: a lump-sum death benefit if there is at least one surviving spouse or dependent child a monthly benefit to the surviving spouse, if any a monthly income benefit to the deceased worker's brothers or sisters, if any a monthly benefit to surviving parents, if any

a monthly income benefit to the deceased worker's brother or sisters, if any - The surviving spouse of a deceased worker is entitled to benefits as early as age 60-age 50, if the spouse is disabled.

The basic goal of the human life value approach to determining life insurance needs is to calculate: a person's economic value the amount of life insurance that should be purchased on each member of the family both a family's lump-sum needs at death and their ongoing need for income the Social Security benefits survivors will receive upon a wage earner's death

a person's economic value - The human life value approach is based on the economic value of a human life.

With regard to qualified plans, the term "vesting" refers to the point at which: a plan participant can take distributions from the plan without tax penalty a plan participant's accrued benefit must be paid out a plan participant achieves a nonforfeitable right to employer contributions made on his or her behalf no further contributions need to be made on behalf of a plan participant

a plan participant achieves a nonforfeitable right to employer contributions made on his or her behalf Vesting refers to the point at which a plan participant achieves a nonforfeitable right to the contributions made by the employer on his or her behalf. At all times an employee is fully vested in amounts he or she contributed or deferred into a plan.

Premiums that are paid into a variable annuity acquire: annuity units accumulation units cash value units sub-account units

accumulation units - When the annuity owner makes premium deposits and allocates them among the contract's sub-accounts, they are used to buy accumulation units, which are then credited to the owner's contract.

Although exceptions exist, distributions from a qualified retirement plan are subject to a penalty tax if taken any earlier than the employee's: age 55 Social Security full retirement age age 62 age 59½

age 59½ If taken before the employee's age 59½, plan distributions may be subject to a 10 percent tax penalty.

A fixed deferred annuity that has a guaranteed interest rate of 3 percent and a current declared rate of 5 percent can adjust the current declared rate: only if the current rate drops to the guaranteed rate of 3 percent any time after the initial rate period only every two years never

any time after the initial rate period - The current rate can be changed at the insurer's discretion any time after the initial rate period (typically two years).

What will happen if a person starts receiving Social Security retirement benefits before reaching his or her full retirement age and continues to work and earn money that exceeds specified earnings limits? Benefits will be permanently reduced. Benefits will be reduced each year until the worker attains full retirement age. Benefits will be increased. Benefits will not be affected.

benefits will be reduced each year until the worker attains full retirement age - If a person retires early and continues to work, his or her Social Security benefits can be reduced $1 for every $2 that the amount earned exceeds the annual earnings limit.

The period after the youngest child turns age 16, during which no Social Security benefits are payable to a surviving spouse until he or she reaches age 60, is called the: survivor period early retirement period dependency period blackout period

blackout period

Hannah participates in her company's retirement plan, which provides for 100 percent vesting after five years with no vesting prior to that. What is this type of vesting schedule called? graduated vesting qualified vesting accelerated vesting cliff vesting

cliff vesting Under a cliff vesting schedule, the participant is 0 percent vested in a plan's contributions or benefits for the first four years of participation. Then, in the fifth year, he or she is 100 percent vested. For plans with employer matching contributions, cliff vesting is reduced to a three-year schedule.

Which of the following can be funded with a single premium payment, a series of fixed premium payments, or flexible premium payments? retirement annuities single-premium immediate annuities deferred annuities immediate annuities

deferred anuities - Immediate annuities can only be bought with a single lump-sum premium payment.

Jenny is considered fully insured under Social Security, which qualifies her for which of the following benefits? survivor benefits only disability benefits and retirement benefits only survivor benefits and retirement benefits only disability benefits, survivor benefits, and retirement benefits

disability benefits, survivor benefits, and retirement benefits - Being fully insured entitles a worker to full OASDI benefit coverage, including disability benefits, survivor benefits, and retirement benefits.

John would like to buy life insurance to provide for his family in case he dies prematurely. Using the needs approach to answer this question, his producer will gather all the following pieces of information, EXCEPT: economic value risk profile assets and liabilities current income

economic value - To figure out how much life insurance John needs and the type of policy that is most appropriate, the agent will collect information about John's risk tolerance.

Annuity contracts include a provision to pay a death benefit if the owner or annuitant dies before the contract annuitizes. What does this death benefit typically equal? either the contract's accumulated value or the amount of any outstanding loans, whichever is greater either the contract's accumulated value or the amount of premium the owner invested, whichever is greater the contract annuity amount or the owner's imputed value amount, whichever is greater either the contract's accumulated value or the amount of premium the owner invested, whichever is less

either the contract's accumulated value or the amount of premium the owner invested, whichever is greater - The death benefit typically equals either the contract's accumulated value or the amount of premium the owner invested, whichever is greater.

When calculating the ongoing income that a surviving family will need after an insured dies, the insured must consider all of the following expenses EXCEPT: family medical expenses utilities final funeral expenses housing expenses

final funeral expenses - After an insured dies, the surviving family will have ongoing daily and monthly expenses, such as utilities, taxes, and savings.

Which of the following annuities specifies the exact premium payment amounts (and when they must be paid) for the contract to generate the desired future income payments? deferred annuity flexible premium deferred annuity immediate annuity fixed premium deferred annuity

fixed premium deferred annuity - Flexible premium deferred annuities allow the owner to make premium deposits of any amount whenever he or she wants. However, a certain minimum amount may be required.

Which of the following requires monthly fixed premium payments of a specified amount, produces a predetermined amount of income upon annuitization, and has traditionally been used to supplement retirement income? fixed premium deferred annuity single-premium deferred annuity flexible premium deferred annuity immediate annuity

fixed premium deferred annuity - Immediate annuities are funded and can only be bought with a single lump-sum premium payment.

Which of the following annuities accepts periodic premiums of any amount (above a specified minimum) and on any frequency desired by the annuity owner? retirement annuity flexible premium deferred annuity immediate annuity fixed premium deferred annuity

flexible premium deferred annuity - Flexible premium deferred annuities allow the owner to make premium deposits of any amount whenever he or she wants. However, a certain minimum amount may be required.

Which of the following actions is taken if the amount of OASDI benefits that a family receives, based on the earnings of a single worker, exceeds the maximum family retirement benefit? The family will be required to return the excess benefits. Future benefits payable to the family members will be reduced proportionately. Benefits paid to some family members will be terminated. The benefit paid to the worker is reduced

future benefits payable to the family members will be reduced proportionately - If the total benefits payable to a spouse and children exceed this limit, then their benefits are reduced proportionately.

Using the "needs approach" to determining lump-sum cash needs at death, a producer should consider all the following expenses EXCEPT: the insured's debt estate taxes and estate settlement costs future food, clothing, and housing expenses final medical and funeral expenses

future food, clothing, and housing expenses - Final medical and funeral expenses are cash needs to be paid at the insured's death.

The Acme Company sets up a plan that provides annuities to its employees when they retire. The individuals those annuities cover hold "certificates of participation." Which type of plan is that? 403(b) plan fixed annuity group annuity multiple-lives annuity

group annuity- annuities can be used by employers on a group basis. A group annuity has the same features as an individual annuity, except that it is written on a group basis.

A deferred annuity rider that lets the annuity owner commit only part of the annuity's funds to providing guaranteed lifetime income, leaving the remainder available for withdrawal at the owner's discretion, is called a: return of premium rider guaranteed insurability rider death benefit rider guaranteed income rider

guaranteed income rider - the guaranteed income rider lets the annuitant receive a payment for life without having to annuitize the contract

The process of determining life insurance needs by discounting a person's future net earnings into a single sum that represents the person's economic value is called the: human life value approach financial loss analysis financial needs analysis needs approach

human life value approach - The human life value approach involves estimating an individual's personal earnings each year to retirement. The costs of self-maintenance and income taxes are then deducted, and the result is the income needed to provide for family members.

One of the first systems developed for determining life insurance needs, which it did by calculating a person's economic value, was called the: human life value approach cost-benefit analysis needs approach financial loss analysis

human life value approach - The human life value approach involves estimating an individual's personal earnings each year to retirement. The costs of self-maintenance and income taxes are then deducted, and the result is the income needed to provide for family members. This residual income stream is then discounted to its present value.

Which of the following distribute a sum of money regularly, starting very shortly after they are bought? retirement annuities immediate annuities deferred annuities life insurance

immediate annuities - Immediate annuities distribute a sum of money regularly, starting very shortly after they are bought.

The needs approach to determining life insurance needs quantifies two basic categories of life insurance needs, which are: immediate lump-sum cash needs and funds to pay final expenses ongoing income needs of survivors and funds to pay monthly expenses immediate lump-sum cash needs and funds to pay estate taxes and settlement costs immediate lump-sum cash needs and ongoing income needs

immediate lump-sum cash needs and ongoing income needs When an insured dies, the two most basic categories of needs that arise are immediate needs that require a lump-sum cash amount (such as to pay final expenses and estate taxes) and an ongoing income stream to cover monthly expenses.

Which statement correctly describes how corporate-owned deferred annuities are taxed? Income taxation of the contract's gain is deferred until distributed, the same as with personally owned annuities. Interest earnings are tax deferred and are tax free if the contract is annuitized. Income tax is payable annually on that year's gain in the contract. They are income tax free, though capital gains tax may be payable when funds are distributed.

income tax is payable annually on that year's gain in the contract - Unlike personally owned annuities, corporate-owned annuities are not tax deferred. Interest is taxable in the year earned.

If a market-value adjusted annuity (MVA) is surrendered before the end of the contract term at a time when current market interest rates are lower than they were when the annuity was issued, the insurer will: maintain the same interest rate on the withdrawn funds and charge the normal surrender charge increase the interest rate on the withdrawn funds and charge the normal surrender charge maintain the same interest rate on the withdrawn funds and reduce the normal surrender charge decrease the interest rate on the withdrawn funds and charge the normal surrender charge

increase the interest rate on the withdrawn funds and charge the normal surrender charge - If current market rates are lower than they were when the annuity was issued, the MVA works to the contract owner's advantage by causing the insurer to increase the interest that was credited to the surrendered amount.

Which of the following explains why the human life value approach to determining insurance needs is rarely used today? It uses a complicated formula most producers don't like using. Consumers generally find the human life value process too difficult to understand. It doesn't factor in all that it takes to secure a family's financial future. It produces an unreasonably large life insurance recommendation.

it doesn't factor in all that it takes to secure a family's financial future - The human life value approach does not consider a family's actual needs and ignores important factors like inflation, rising wages, and changing interest rates.

When a person retires before full retirement age, what happens to the monthly income amount of his or her Social Security retirement benefits? It is permanently increased. It is permanently reduced. It is forfeited. It is delayed until the person reaches full retirement age.

it is permanently reduced - A worker's primary insurance amount (PIA) is paid only if the worker retires at full retirement age (FRA). Retiring before FRA permanently reduces the amount of Social Security retirement benefit that is paid each month.

Which of the following annuity settlement options best suits two spouses who want to make sure payments will continue for as long as either is alive, no matter which of them dies first? joint life income option joint and survivor option straight life income option life income with refund guarantee option

joint and survivor option: Under a joint and survivor option, an income is paid until the second of the two annuitants dies. When the second annuitant dies, no further payments are made to anyone. Joint life income options are common for married couples who want to assure a continued income stream for both lives.

Social Security does NOT provide benefits for death retirement disability medical care

medical care The Old Age, Survivors, and Disability Insurance (OASDI) program known as Social Security pays benefits to covered workers and their families for retirement, disability, and death.

Annuity income payments are most commonly paid on what schedule? quarterly in a lump sum monthly annually

monthly

What must an annuity owner do to withdraw funds from his or her annuity contract? pledge a certain amount of collateral, and agree to a repayment schedule notify the insurer of the request to withdraw funds provide proof of the owner's need for those funds The funds must remain in the contract until annuitization.

notify the insurer of the request to withdraw funds - An annuity owner who wants to withdraw any values from his or her contract must simply notify the insurer. The insurer cannot withhold these funds or refuse to honor the owner's request.

The FICA tax is split between an employee and employer, with the employee paying how much? one-half (50 percent) of the total tax one-third (33 percent) of the total tax three-quarters (75 percent) of the total tax one-quarter (25 percent) of the total tax

one-half (50%) of the total tax - Employees and their employers split the tax 50/50, while self-employed individuals pay the full tax.

When does a fixed deferred annuity contract provide a death benefit? never; only life insurance policies have death benefits only if the contract owner or annuitant dies during the accumulation period only if the owner purchased a death benefit rider with the annuity only if the annuitant dies after the contract is annuitized

only if the contract owner or annuitant dies during the accumulation period - Fixed annuity contracts provide for a death benefit, equal to the policy value, if the contract owner or annuitant dies during the accumulation period.

Which of the following annuity settlement options will pay the annuitant's beneficiary a death benefit equal to the difference between the amount annuitized and the sum of payments distributed if the annuitant dies prematurely? life income with period certain joint and survivor life income life income with refund guarantee straight, or pure, life income

period certain-only option - A period certain annuity distributes income payments for a specified period only (as opposed to a life and period certain annuity, which pays benefits for the longer of the annuitant's life or the term of the period certain).

Although persons may begin receiving Social Security retirement benefits as early as age 62, their benefits are increased when they are 70 years old reduced until they reach full retirement age reduced until they are 65 years old permanently reduced

permanently reduced - Regardless of full retirement age (FRA), persons may begin receiving benefit payments as early as age 62. This results in a permanent reduction in benefits of as much as 30 percent of paid-in allowance (PIA).

Which of the following distributes income payments over time beginning soon after purchase and can be funded only with a single lump-sum premium payment? flexible premium immediate annuity single premium immediate annuity single premium deferred annuity fixed premium deferred annuity

single premium immediate annuity - SPIAs can only be bought with a single lump-sum premium payment. They then regularly distribute a given sum of money over time soon after purchase.

Which of the following distributes income payments over time beginning soon after purchase and can be funded only with a single lump-sum premium payment? flexible premium immediate annuity single premium immediate annuity single premium deferred annuity fixed premium deferred annuity

single premium immediate annuity - SPIAs can only be bought with a single lump-sum premium payment. They then regularly distribute a given sum of money over time soon after purchase.

A currently insured worker is eligible for which of the following Social Security benefits? retirement benefits only survivor death benefits and disability benefits survivor death benefits only survivor death benefits, disability benefits, and retirement benefits

survivor death benefits only - Workers who are currently insured are eligible for survivor benefits only. To be eligible for other Social Security benefits, a worker must be fully insured.

What is the name of the period during which premium funds are paid into an annuity contract? the benefit period the accumulation period the annuity payout the annuity period

the accumulation period - the period during which premium funds are paid into the contract is the "accumulation period"

All the following are parties to an annuity contract EXCEPT: the annuitant the agent the beneficiary the owner

the agent - In addition to the insurance company that issues the contract, the parties to an annuity are the owner, the annuitant, and the beneficiary.

What is the only part of a nonqualified annuity's death benefit that is taxable? the amount that exceeds the contract's gain. the amount that exceeds the amount the owner paid into the contract the amount that exceeds the annuitant's cost basis the full death benefit

the amount that exceeds the amount the owner paid into the contract - The only part of the proceeds that is taxable is that which exceeds the amount the owner paid into the contract (i.e., the contract's basis).

George purchased an annuity that will provide his wife, Anna, with monthly income payments for as long as she lives. In this scenario, what is Anna called? the agent the beneficiary the annuitant the owner

the annuitant - The annuitant is the person the owner chooses to receive the periodic annuity payments when the contract annuitizes.

Whether a variable annuity's monthly income rises, falls, or stays level depends largely on which of the following? the assumed interest rate (AIR) selected by the contract owner the number of annuity units calculated for the annuity 2000 CSO Mortality Table the annuity settlement option selected by the annuity owner

the assumed interest rate (AIR) selected by the contract owner - While the settlement option does influence the amount of income, this does not result in income payments that may rise and fall over time.

What does the length of an annuity's surrender charge period depend on? the age of the beneficiary the period selected by the owner when the annuity is purchased the age of the annuitant the contract design

the contract design - The owner has no say in the terms of the surrender charge, which is defined in the contract.

The IRS encourages the use of annuities for long-term retirement savings, which is why it imposes a penalty tax on deferred annuity withdrawals that occur before: the contract owner begins collecting Social Security retirement benefits the annuitant reaches his or her Social Security full retirement age the contract owner reaches age 62 the contract owner reaches age 59½

the contract owner reaches age 59½- With few exceptions, non-annuitized withdrawals from a deferred annuity before age 59½ are subject to a 10 percent penalty tax in addition to ordinary income taxation.

Which of the following statements is true regarding an insured executive bonus plan? The executive pays the premium. The executive is the policyowner. The employer can choose the beneficiary. The employer receives the death benefit. Under an insured executive bonus plan, the executive owns the life insurance policy and can name the beneficiary.

the executive is the policyowner - Under an insured executive bonus plan, the executive owns the life insurance policy and can name the beneficiary.

Sue, an annuity owner, names her 15-year-old son and 10-year-old daughter as joint annuitants of her contract. Upon whose life (or lives) are income payments determined? Sue's life the joint life expectancy of Sue's son and daughter Sue's son's life Sue's daughter's life

the joint life expectancy of sue's son and daughter - If two people are named jointly as annuitants, then their joint life expectancy is the measurement for the contract's income payments.

What does the employer own under a group insurance plan? the right to charge what it wants for participating employees the master policy the employees' right to negotiate on their own behalf the value of the group insurance and the insurance contracts

the master policy - The employer does not own the value of the group insurance and the insurance contracts

Eligibility for OASDI benefits is determined on the basis of: the worker's age the number of dependents a worker has a worker's economic need the number of quarters of coverage the worker has earned

the number of quarters of coverage the worker has earned A worker's insured status is based on the number of quarters of coverage (QCs) he or she has earned.

George purchased an annuity in which his wife will receive income for as long as she lives. In this scenario, what is George most correctly called? the agent the beneficiary the owner the annuitant

the owner - The annuitant is the person the owner chooses to receive the periodic annuity payments when the contract annuitizes. The owner is not always the annuitant.

What is another name for the annuitization phase of an annuity contract? the conservation stage the accumulation stage the payout stage the ownership stage

the payout stage

In which one of the following situations would the premiums paid for individual life insurance be tax-deductible? the premium is for a policy the policyowner has assigned to a bank as collateral for a loan the premium is for a policy a business owner purchased on a key employee the premium is for a policy the premium payer donated to a charitable organization the premium is for a policy the insured purchased to assure his family's financial security

the premium is for a policy the premium payer donated to a charitable organization - If the premium is for a life insurance policy the premium payer donated to a charitable organization, the premium is a tax-deductible charitable contribution.

What part of employer-funded group life insurance coverage-if any-is tax exempt for employees? the value of the first $25,000 of coverage the full amount of coverage $0 the value of the first $50,000 of coverage

the value of the first $50,000 of coverage - The IRS Table I value of the first $50,000 of coverage is tax exempt for employees. In other words, the imputed value for the first $50,000 of coverage is not taxable to the employee. But the value of any amount over that level of coverage is taxable.

What happens to Social Security retirement benefits when a person postpones them past their full retirement age (FRA)? They increase. They are forfeited. They are permanently reduced. They remain the same.

they increase - For persons who defer Social Security retirement benefits beyond their full retirement age, the monthly benefits increase by about eight percent for each year they are delayed.