Life/Health A.D. Banker - Chapter 6

T has some heart health issues, but needs some additional life insurance coverage. What options should T consider? A A group life insurance plan B A group health insurance plan C Universal Life Option B D Adjustable Life

A For those who don't qualify for an individual policy because of age or health reasons, group life coverage might be a good option.

The widow or widower's Social Security blackout period lasts until a surviving, non-remarried spouse reaches age ________. A 60 B 65 C 62 D 50

A The blackout period ends at age 60.

Which of the following is a likely outcome if a buy-sell agreement in a two person partnership is not in place when one of the partners dies? A The surviving spouse of the deceased becomes the other partner B The agreement will need to go through the probate process C Partnership transfer taxes are due within 9 months D The value of the business will increase

A Without a Buy-Sell Agreement in place, the surviving spouse of the deceased partner will likely step in as the new partner.

A primary purpose of key person life insurance is to do which of these? A Protect the business against the death of any employee earning at least $50,000 per year B Provide the business with money to pay vested retirement benefits to the heirs of the employee as a lump sum C Provide the business with money to recruit and train a replacement employee D Provide the family of the deceased employee with up to ten years of the employee's lost future income

C A valuable employee with highly specialized knowledge or skills, or who adds significant value to the revenue/profitability of the company is a key person, and wages alone is not a criterion. The death of such a person can negatively impact the business operations. The company may use the death benefit proceeds for any purpose, but one of the most common uses is to cover the expense of recruiting, hiring, and training a replacement, which may take months to accomplish.

A partnership has 3 partners who each have an equal ownership interest in their $3,000,000 business. How many policies would have to be purchased under a traditional cross purchase buy-sell agreement plan? A 9 B 3 C 6 D 1

C There would need to be 6 policies purchased in a traditional cross purchase buy-sell agreement plan (3x2). Each partner would be acquiring a policy on the other two partners.

When is an entity buy-sell agreement plan used? A When the entity needs an additional tax deduction B When the owners are not in the financial position to buy the policies on their own C When insurability is an issue D When the entity buys life insurance on each of the owners

D Under an entity plan, a business entity enters into an agreement in which it is obligated to purchase the deceased's owner's interest. The entity typically buys life insurance policies on each of the owners and then would name itself as the beneficiary of each policy.

The 31 days in which the employee may change his/her group policy to an individual policy upon termination and without evidence of insurability, is known as: A The Contestable Period B The Conversion Period C Ownership Rights Provision D Change of Policy Provision

B As the name implies, the Conversion Period is the period in which an employee may convert the group term death benefit to an individual permanent policy upon termination and without evidence of insurability.

In a credit life plan, who is the beneficiary? A The children of the insured B The creditor C The wife of the insured D The husband of the insured

B Credit life insurance is a group form of life insurance that is owned by and benefits only the creditor in the event of the death of the borrower. It may be issued as an indeterminate amount of coverage, as for a credit card, or it may be a single premium type of coverage in the form of decreasing term for a short term debt such as an automobile loan.

All of the following are generally the main business uses of life insurance, except: A. To provide funds for the continuation of the business B. To cover the unexpected death of a key employee C. To cover the unexpected death of a business partner D. To provide funds for the deceased's heirs

D. Business uses of insurance often mirror individual needs - to cover the unexpected death of business partners, executives, and key employees by providing funds for the continuation of the business, not for the heirs of the decedent.

All of the following are characteristics of Credit Life Insurance, except: A The debtor generally is both policyowner and beneficiary B The amount of the insurance benefit must not exceed the total amount of indebtedness C This insurance is normally Decreasing Term and the amount of insurance reduces as the obligation reduces D The insurance is either a form of individual coverage on the life of a debtor, or a form of group insurance issued to a creditor providing coverage for debtors

A The creditor (not the debtor) is normally both the policyowner and beneficiary.

To help protect against ___________, group plans have a probationary period set by the group sponsor. A. Preexisting conditions and immediate claims B. High employee turnover C. Lazy and unmotivated employees D. Inventory shrinkage and bad hires

A. To help protect against preexisting conditions and immediate claims, group plans have a probationary period set by the group sponsor.

In those instances in which the death of a valued employee could cause financial hardship for a company, the company might acquire additional funds through which type of coverage? A. Key Person B. Employer-Employee Cross Purchase C. Business Reimbursement D. Preferred Insured

A. The business would likely purchase a Key Person (Key Employee) Policy on the life of the valued employee to offset the expenses and financial losses due to the death of that employee.

Which of the following best describes Third-Party Ownership? A. A policy owned by one person insuring the life of another person B. A business partner buying a life insurance policy on him/herself C. A key employee buying a life insurance policy on him/herself D. A policy owned by the insured

A. When a policy is owned by someone other than the insured, it is a third-party ownership situation.

A key person is typically all of the following, except: A More highly paid B Not directly involved in sales, production, or service C Part of the management team D Respected by customers, creditors, suppliers, or vendors

B Key persons are employees whose contributions have a significant impact on the revenue and profitability of the company, especially in small businesses. They are typically: part of the management team, more highly paid, respected by customers, creditors, suppliers, and vendors, and have direct responsibilities for sales, production, or service.

Open enrollment periods are offered on a(n) ______ basis that allows individuals to enroll without evidence of insurability or to make changes. A. Bi-annual B. Annual C. Semi-annual D. Quarterly

B. Open enrollment periods are offered on an annual basis that allows individuals to enroll without evidence of insurability or to make changes.

Which of the following is the least important when it comes to determining the cost of the group life insurance plan? A The nature of the work involved B The group' claims C The health of each member of the group D Size of the group

C Since evidence of insurability is not usually required, the health of each member of the group is not used when determining premiums of the group.

___________ restrict the insurer's underwriting criteria for group policies. A State laws B Federal laws C State and federal laws D NAIC and Insurance Department rules and regulations

C State and federal laws restrict the insurer's underwriting criteria for group policies.

The proceeds from a _________ plan provide the necessary funds to recruit, hire, and train a replacement employee. A Entity B Cross purchase C Group D Key employee

D Key employee life insurance plans provide the funds to recruit, hire, and train a replacement employee.

When a group insurance plan is identified as contributory, it means all of the following, EXCEPT: A. Employees pay a portion of the cost of their benefit B. Employees must be eligible to participate C. Employers are responsible for collecting the premiums employees pay D. Employers must enroll 100% of eligible employees

D. In a contributory group insurance plan, the employer is required to maintain at least 75% participation. Noncontributory group plans require 100% participation. There are some cash value forms of group life insurance, but they do not develop cash value for the employee unless the employee contributes premiums to the plan.

The highest monthly Social Security retirement benefit would occur if started at age _______. A 70 B 65 C 60 D 62

A Social Security Retirement Benefits are benefits paid to workers (Normal Retirement Age or reduced benefits at age 62) and their dependents.

In a credit life plan, who is the beneficiary? A. The creditor B. The husband of the insured C. The children of the insured D. The wife of the insured

A. Credit life insurance is a group form of life insurance that is owned by and benefits only the creditor in the event of the death of the borrower. It may be issued as an indeterminate amount of coverage, as for a credit card, or it may be a single premium type of coverage in the form of decreasing term for a short term debt such as an automobile loan.

Buy-Sell agreements are used for all of the following entities, except: A Sole Proprietorships B Large Public Corporations C Partnerships D Closely held businesses

B Large corporations are not candidates for Buy-Sell agreements. The Buy-Sell agreement is for much smaller entities.

A mandatory participation rate for noncontributory group plans is designed to: A Allow the employer to obtain the greatest premium discount B Reduce adverse selection C Achieve economies of scale D Maximize the premium an insurer collects

B Requiring 100% of eligible employees to participate in a noncontributory employer group life insurance plan reduces the risk of adverse selection.

In a group life insurance plan, the employee has control over which of the following? A. Mode of premium payments B. Choice of beneficiary C. Choice of insurance company D. Type of policy

B. In group life insurance the sponsor of the plan (the employer) has control over all facets of the coverage and cost, but the choice of beneficiary is left to the participant (the employee). A group life plan may not benefit the sponsor of the plan.

An agreement that establishes a price with the intent to purchase the assets of a business should one of the parties to the agreement predeceases the other is called a ___________. A. A Key Person Plan B. A Group Plan C. Buy-Sell Agreement D. A Business Plan

C. A Buy-Sell Agreement is a legal and binding contract. A method of valuing the business is critical for the buy/sell to be effective and carried out in a timely manner. In an Entity Purchase Plan, the company is the beneficiary. In a Cross Purchase Plan, each partner is the owner and beneficiary of policies purchased on the other partners.

How is the funding for Social Security provided? A Through FICA taxes that are paid by employees B Through the PIA C Through FICA taxes that are paid by employers D Through FICA taxes that are paid by both employers and employees

D Both the employer and employee fund Social Security through paying FICA taxes. Self-employed persons pay the entire amount.

All are correct statements concerning noncontributory group life, except: A The Conversion Period is 31 days B If employer-sponsored, an employee must work a minimum number of hours per week to be eligible C Only the plan sponsor is responsible for paying premiums D Premiums are calculated by underwriting each individual in the group

D Since no proof of insurability is required on the part of the plan participants, the insurer looks at the group collectively, factoring a number of variables.

The highest monthly Social Security retirement benefit would occur if started at age _______. A. 65 B. 60 C. 70 D. 62

C. Social Security Retirement Benefits are benefits paid to workers (Normal Retirement Age or reduced benefits at age 62) and their dependents.

The Social Security Death Benefit is payable to the ____________. A. The next of kin B. The named beneficiary C. The surviving spouse D. The estate of the insured

C. The Social Security Death Benefit is payable to the surviving spouse or minor children if they meet certain requirements.

In order for a worker to be qualified for all of the benefits available from Social Security how many credits must be earned? A 30 credits B 1 credit for each year of work between age 20 and age 40 C 40 credits D 6 credits in the last 13 quarters

C To be eligible for SS all benefits and be considered fully insured, a worker must have earned 40 credits.

All of the following are correct regarding Key Person Insurance, except: A The policy is owned by the employer B The policy primarily insures the employee's retirement plan C The policy can be term or permanent D The policy is source of funds to replace any lost revenue

B A Key Person Plan is intended to help a company recover from the loss of a key employee until a replacement is found.

Group Life Insurance is usually written as: A. Increasing Term B. Annual Renewable Term C. Contributory Term D. Decreasing Term

B. Group Insurance is usually written as annual renewable term so that, based on a number of factors, the insurer may change the rate or the employer may change the plan.

The lowest monthly Social Security retirement benefit would occur if started at age _______. A 62 B 70 C 65 D 63

A Social Security Retirement Benefits are benefits paid to workers (Normal Retirement Age or reduced benefits at age 62) and their dependents.

When a group insurance plan is identified as contributory, it means all of the following, EXCEPT: A Employees must be eligible to participate B Employers must enroll 100% of eligible employees C Employees pay a portion of the cost of their benefit D Employers are responsible for collecting the premiums employees pay

B In a contributory group insurance plan, the employer is required to maintain at least 75% participation. Noncontributory group plans require 100% participation. There are some cash value forms of group life insurance, but they do not develop cash value for the employee unless the employee contributes premiums to the plan.

A Social Security retirement benefit recipient will receive the greatest benefit starting at which of the following ages? A 63 1/2 B 65 C 60 D 62

B The earlier retirement benefits are requested and received, the smaller they are.

Who is generally named as the beneficiary when a credit life insurance policy is issued? A Debtor B Estate of the insured C Creditor D Spouse of insured

C When a credit life insurance policy is issued, the creditor is normally named as the beneficiary in order to be able to recover the outstanding debt when the insured dies.

If an employee does not enroll during open enrollment and they still want coverage, what happens? A They pay more in premiums than those who enrolled during the open enrollment B They cannot obtain as much coverage as those who enrolled during the open enrollment C The forms of insurance are more limited when they do apply for coverage D They must provide proof of insurability

D They must provide evidence of insurability unless they wait until the next open enrollment period.

Which of the following meets the criterion for being a natural group for group life insurance purposes? A All members of the group live within the same zip code B Members of the group all have a college degree C The group has at least 500 members D The group was formed for a purpose other than for procuring or reducing the cost of insurance

D To be eligible for a group plan, the group must be a natural group, meaning it was formed for a purpose other than for procuring or reducing the cost of insurance.

All of the following are parties to a life insurance contract, except: A. The insurer B. The policyowner C. The insured D. The beneficiary

D. While beneficiaries are named, they are not a party to a life insurance policy.

The Master Policy for a group life plan goes to the employer. What does the employee receive? A. Claim form package B. Certificate of Insurance C. Change of beneficiary form D. Copy of the Master Policy

B. The employees in a group life plan receive a Certificate of Insurance that describes the benefit, identifies the insurance company and policy and certificate numbers, and provides information about changing beneficiaries or filing a claim.

With a Contributory Group Life Plan, what percentage of the employees must participate? A At least 60% B At least 75% C A full 100% D At least 50%

B A Contributory Plan is one in which the participants pay all or a portion of the premiums. The high enrollment percentage, 75%, helps to minimize the risk of adverse selection.

In order for a worker to be qualified for all of the benefits available from Social Security how many credits must be earned? A. 6 credits in the last 13 quarters B. 1 credit for each year of work between age 20 and age 40 C. 40 credits D. 30 credits

C. To be eligible for SS all benefits and be considered fully insured, a worker must have earned 40 credits.

The advantage of an insurance funded buy-sell agreement is: A The surviving spouse becomes the new partner in the firm B The estate transfer may be delayed due to forced business liquidation C Assets are forced to be sold to generate cash to pay for the business interest of the deceased partner D It is a legally enforceable agreement, which pre-establishes the value of the business, and provides the funds for an efficient method of transferring the deceased's business interest

D Some of the advantages of having such an agreement: it is legally enforceable, the value of the business is previously agreed upon, it is an immediate and automatic method of transferring the deceased's interest due to readily available funds.

When is an entity buy-sell agreement plan used? A. When the owners are not in the financial position to buy the policies on their own B. When insurability is an issue C. When the entity needs an additional tax deduction D. When the entity buys life insurance on each of the owners

D. Under an entity plan, a business entity enters into an agreement in which it is obligated to purchase the deceased's owner's interest. The entity typically buys life insurance policies on each of the owners and then would name itself as the beneficiary of each policy.

If enrolled in an accredited elementary or secondary school, a covered child can continue receiving Survivor Benefits up to what age? A. 20 B. 19 C. 17 D. 21

B. Children may continue receiving survivor benefits up to age 19 if enrolled in an accredited elementary or secondary school.

In which market are Certificates of Insurance issued to insured individuals? A Group B Individual C Industrial D Franchise

A In the group market, no individual policies are issued. The employer receives the Master Contract and the employees or members receive Certificates of Insurance.

One of the purposes of a Buy-Sell Agreement is which of these? A It describes the conditions that will force a sale of the business, as well as the requirements to be met if the business wants to buy the assets of a competitor B It acknowledges the commitments of the partners to each other and to their heirs to assure the continuation of the business in the event one of them dies unexpectedly C To provide the business with funds in the event of the death of a key person who is not an owner D It describes which relatives of a business owner have the right to purchase that person's interest in the business

B The primary purpose of a Buy-Sell Agreement is to acknowledge the partners' commitment to the business, how the business is valued, and what will happen to the business if one or more of the owners were to die or become disabled.

The Social Security blackout period for surviving spouses begins when the youngest child reaches age ______, and ends when the surviving spouse reaches age ______. A. 16/60 B. 18/60 C. 16/62 D. 18/65

A. When the youngest child reaches age 16, the widow's/widower's blackout period begins. It continues until a surviving (non-remarried) spouse reaches age 60.

he Master Policy for a group life plan goes to the employer. What does the employee receive? A Certificate of Insurance B Change of beneficiary form C Claim form package D Copy of the Master Policy

A The employees in a group life plan receive a Certificate of Insurance that describes the benefit, identifies the insurance company and policy and certificate numbers, and provides information about changing beneficiaries or filing a claim.

A primary purpose of key person life insurance is to do which of these? A. Provide the business with money to recruit and train a replacement employee B. Protect the business against the death of any employee earning at least $50,000 per year C. Provide the family of the deceased employee with up to ten years of the employee's lost future income D. Provide the business with money to pay vested retirement benefits to the heirs of the employee as a lump sum

A. A valuable employee with highly specialized knowledge or skills, or who adds significant value to the revenue/profitability of the company is a key person, and wages alone is not a criterion. The death of such a person can negatively impact the business operations. The company may use the death benefit proceeds for any purpose, but one of the most common uses is to cover the expense of recruiting, hiring, and training a replacement, which may take months to accomplish.

In a group life insurance plan, the employee has control over which of the following? A Mode of premium payments B Type of policy C Choice of beneficiary D Choice of insurance company

C In group life insurance the sponsor of the plan (the employer) has control over all facets of the coverage and cost, but the choice of beneficiary is left to the participant (the employee). A group life plan may not benefit the sponsor of the plan.

After the blackout period has ended, the widow or widower may receive a Social Security income benefit based on the ___________. A FICA taxes that are paid by employers B FICA taxes that are paid by the employees C PIA of the deceased spouse D Social Security Death Benefit

C The widow or widower may receive a Social Security income benefit based on the PIA of the deceased spouse.

Proceeds from a buy-sell agreement are received ___________. A. Taxed to the extent that the amount exceeds $50,000 B. Taxable as income C. Income tax free D. Only after the deceased's estate is settled and a proper valuation of their share of the business

C. The premiums payable for a buy-sell agreement are not tax deductible, therefore the benefit is received income tax free.

How is the funding for Social Security provided? A. Through the PIA B. Through FICA taxes that are paid by employees C. Through FICA taxes that are paid by employers D. Through FICA taxes that are paid by both employers and employees

D. Both the employer and employee fund Social Security through paying FICA taxes. Self-employed persons pay the entire amount.

One of the purposes of a Buy-Sell Agreement is which of these? A. It describes the conditions that will force a sale of the business, as well as the requirements to be met if the business wants to buy the assets of a competitor B. It describes which relatives of a business owner have the right to purchase that person's interest in the business C. To provide the business with funds in the event of the death of a key person who is not an owner D. It acknowledges the commitments of the partners to each other and to their heirs to assure the continuation of the business in the event one of them dies unexpectedly

D. The primary purpose of a Buy-Sell Agreement is to acknowledge the partners' commitment to the business, how the business is valued, and what will happen to the business if one or more of the owners were to die or become disabled.