Test for life pt 2
Ben, a single working father, dies at age 50. How much will his only child, Tom, age 16, receive from Social Security in a lump-sum death benefit? $0 $255 $750 an amount equal to 50 percent of Ben's PIA.
$255 Explanation: Dependent survivors may be eligible for a modest $255 lump-sum death benefit, payable only if there is a spouse or dependent child under age 18.
For a 30-year-old insured, which of the following life insurance policies of the same face amount would lead to the fastest buildup of cash value? level term life straight whole life 20-pay life life-paid-up-at-65
20-pay life Explanation: The 20-pay life policy will require higher premium payments and is confined to a shorter time than straight whole life, so its cash value will build up more rapidly.
To qualify for the accelerated benefit rider, an insured must prove he or she either has had a permanently disabling injury or a terminal illness that can be expected to result in death within: 90 days 5 months 12 months 24 months
24 months Explanation: To be classified as terminally ill, the person must be certified by a doctor as having a condition that can be expected to result in death within 24 months.
Which of the following most correctly explains the basic purpose for a life insurance policy's automatic premium loan (APL) provision? An APL lets the policyowner set up a monthly debit plan out of his or her checking account to pay the premium. An APL automatically pays off an outstanding policy loan if the policyowner forgets to make a loan payment. An APL lets the policyowner easily borrow money from a life insurance policy for any purpose with no 'paperwork'. An APL prevents a policy from lapsing if the policyowner fails to pay the premium by automatically creating a policy loan to cover premiums owed.
An APL prevents a policy from lapsing if the policyowner fails to pay the premium by automatically creating a policy loan to cover premiums owed.
All the following statements regarding a life insurance policy's cost-of-living (COL) rider are correct EXCEPT: The policy's death benefit amount can increase without requiring the insured to prove insurability. COL riders are best suited for universal life insurance policies. COL riders are commonly tied to the consumer price index (CPI). The maximum death benefit increase is usually limited to about 5 percent annually.
COL riders are best suited for universal life insurance policies. Explanation: A cost of living (COL) rider is tied to an inflation index such as the Consumer Price Index (CPI). As the CPI increases, so does the policyowner's coverage. The CPI-driven rate of increase is usually capped at about 5 percent per year.
While indexed annuities are fairly complex products, the basic concept is best described as which one of the following? Changes in the selected stock index are the basis for determining the current interest rate credited to the annuity. The percentage increase in the selected stock portfolio over the contract's term translates into a dollar amount that is added to the annuity. The percent of change in the insurer's separate account over the contract's term determines the dollar amount credited to the funds in the indexed annuity. The difference between the average rate of a selected stock index and the annuity's guaranteed rate is the current interest rate credited to the annuity.
Changes in the selected stock index are the basis for determining the current interest rate credited to the annuity.
Deborah is 40 years old. She is insured under a $500,000 life insurance policy and paid $2,500 in premiums for the policy this year. Which statement is correct when Deborah files her income taxes? Deborah can take an income tax deduction for the premiums she paid if she itemizes her deductions. Deborah cannot take an income tax deduction for the premiums she paid because they are considered a personal expense. Deborah can take an income tax deduction for the premiums she paid for federal but not state income tax purposes. Deborah can take an income tax deduction for the premiums she paid only if they exceed 10 percent of her adjusted gross income.
Deborah cannot take an income tax deduction for the premiums she paid because they are considered a personal expense.
Which statement about life policy riders that cover additional insureds is NOT correct? Policy riders can provide needed coverage on more than one insured at a lower premium. Each additional insured is issued his or her own separate policy. These riders cover someone other than the base policy insured. These riders typically take the form of term insurance.
Each additional insured is issued his or her own separate policy.
Gloria chooses to take her life insurance policy dividends in cash. The insurance company sends a check for the amount of the declared dividend on the anniversary date of the policy. What is the tax consequence to Gloria for receiving cash dividends? Her dividends are tax deferred. Her dividends are fully taxable. Her dividends are not income taxable. Her dividends are only income tax-free if Gloria is over age 62 '.
Her dividends are not income taxable. Explanation: Policy dividends received in cash are not taxable as income.
Tom bought a $100,000 adjustable life insurance policy. With respect to that policy, all the following statements are correct EXCEPT: Tom can increase the death benefit under his policy if he proves insurability. If Tom wants to increase the amount of the death benefit by more than $50,000, he will have to buy a new policy. If Tom wants to change the premium, both he and the insurer must agree to the change. If Tom increases the amount of death benefit but does not increase his premium, the cash value growth slows or stops.
If Tom wants to increase the amount of the death benefit by more than $50,000, he will have to buy a new policy.
Which of the following statements about children's term riders is correct? When coverage ends for a covered child, the child can apply for any permanent life insurance policy only if the child is insurable. There is no age limit for how long a child may be covered under a child's term rider. If a child converts coverage to a permanent policy, the new policy's face amount can be greater than the term rider coverage. The children's term rider only covers children born before the base policy was issued.
If a child converts coverage to a permanent policy, the new policy's face amount can be greater than the term rider coverage. Explanation: Coverage on a child normally ends when the child reaches an age specified in the policy, commonly age 18, 21, or 25.
All of the following statements about annuitized payments under a variable annuity are correct, EXCEPT: Annuitized payments under a variable annuity are based on the assumed interest rate (AIR) and the value of the contract's annuity units. If the value of the annuity units grows at the same rate as the assumed interest rate (AIR), payments to the annuitant will stay the same. If the actual return is greater than the assumed interest rate (AIR), payments will decrease. The value of each annuity payment is directly affected by changes in the assumed interest rate (AIR).
If the actual return is greater than the assumed interest rate (AIR), payments will decrease.
What is insurable interest? With life insurance, insurable interest is the relationship between the person paying for the insurance and the designated beneficiary. Insurable interest is the relationship between the person applying for life insurance and the person whose life is to be insured. It is a necessary element in the issuing of a life insurance contract. Insurable interest represents the financial impact that would be incurred by the loss of the insured person or property. Without it, an insurance policy is a speculative investment and speculative risks are not insurable. Insurable interest is the length of the relationship between the person applying for insurance and the insured. For insurable interest to exist, the buyer must have known the insured for at least three years.
Insurable interest is the relationship between the person applying for life insurance and the person whose life is to be insured. It is a necessary element in the issuing of a life insurance contract.
Nicole, age ten, is the insured in a traditional "jumping juvenile" policy with a $5,000 face amount. When she reaches age 21, what will most likely happen to the policy's face amount? It will increase to $10,000. It will increase to $20,000. It will increase to $25,000. It will remain $5,000.
It will increase to $25,000.
John has a $200,000, 20-year level term policy. Which statement is true? John's beneficiary will receive a $200,000 death benefit if John dies during the 20-year coverage period. John will receive the policy's cash value if he is alive at the end of the coverage term, and the premium will increase annually. John's beneficiary will receive a $200,000 death benefit if John dies during the 20-year coverage period. John will receive nothing from the policy if he is alive at the end of the coverage term, and the premium will increase annually. John's beneficiary will receive a $200,000 death benefit if John dies during the 20-year coverage period. John will receive the policy's cash value if he is alive at the end of the coverage term, and the premium will remain level for the full 20 year term. John's beneficiary will receive a $200,000 death benefit if John dies during the 20-year coverage period. John will receive nothing from the policy if he is alive at the end of the coverage term, and the premium will remain level for the full 20 year term.
John's beneficiary will receive a $200,000 death benefit if John dies during the 20-year coverage period. John will receive nothing from the policy if he is alive at the end of the coverage term, and the premium will remain level for the full 20 year term.
Though based on similar actuarial principles, annuities are regarded as the exact opposite of life insurance. Which of the following explains the meaning of this statement? Both products involve mortality charges, but only life insurance pays out money at the insured's death. Though both are forms of insurance, only life insurance offers a group insurance form of the product. Life insurance offers a wide variety of optional riders, while annuities offer no optional riders. Life insurance creates an estate, while annuities liquidate an estate.
Life insurance creates an estate, while annuities liquidate an estate.
All of the following statements about the interest rates on deferred annuities are correct EXCEPT: The guaranteed minimum rate is usually 5 to 6 percent. The current declared rate is subject to change. The guaranteed minimum rate extends for the life of the contract. The annuity contract is credited with the higher of the guaranteed rate or the current declared rate.
The guaranteed minimum rate is usually 5 to 6 percent.
Which of the following correctly describes the effect that a 14 percent rate cap would have on an indexed annuity? The maximum rate that will be credited to the annuity is 14 percent. The maximum rate that will be credited to the annuity is 14 percent minus the percentage change of the selected stock index. The maximum rate that will be credited to the annuity is 14 percent minus the guaranteed rate specified in the annuity contract. The maximum rate that will be credited to the annuity is 14 percent plus the percentage change of the selected stock index.
The maximum rate that will be credited to the annuity is 14 percent.
Angela is the beneficiary of her mother's group life insurance policy. At her mother's death, Angela decides to receive the proceeds under a life with term certain settlement option. Which portion of the benefit payments, if any, will be subject to taxation? The entire benefit payment amount is taxable. The portion representing the principal amount of the proceeds is taxable. The portion representing the interest on the death proceeds is taxable. No portion of the benefit payments is taxable.
The portion representing the interest on the death proceeds is taxable.
All the following statements about standard policy exclusions are correct EXCEPT: If an insurer excludes a risk from coverage, then it is not covered, and the insurer will not pay the policy's benefit if death results from that risk. Standard exclusions found in most policies last for the life of the policy, even after the contestability period ends. The war and commission of a felony exclusions are required by law. The war exclusion usually excludes paying the death benefit if the death directly resulted from war.
The war and commission of a felony exclusions are required by law.
All the following statements about endowment contracts are correct EXCEPT: If the policy endows while the insured is still alive, the policyowner gets a specified sum as a living benefit. They are designed to build cash values quickly. They receive preferential income tax treatment. Policies endow well before age 120, usually at age 65.
They receive preferential income tax treatment.
With respect to the difference between variable life insurance (VLI) and variable universal life insurance (VUL), which of the following statements is correct? Variable life policies require a fixed premium payable for the life of the policy while variable universal life permits premium flexibility. Only variable life policies allow the policyowner to put funds in investment subaccounts. Only variable universal life policies offer a minimum death benefit. Only variable universal life is a securities product.
Variable life policies require a fixed premium payable for the life of the policy while variable universal life permits premium flexibility.
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.
the main purpose behind an indexed annuity is to offer the owner which of the following? aggressive growth opportunity tax-free income in retirement a guaranteed payment amount in retirement a chance to participate in the stock market without losing principal
a chance to participate in the stock market without losing principal
Sarah is interested in purchasing a deferred annuity. If she doesn't want to risk her principal, which of the following annuity products should she avoid? a fixed annuity a two-tiered annuity a variable annuity an indexed annuity
a variable annuity
Premiums that are paid into a variable annuity acquire: sub-account units annuity units accumulation units cash value units
accumulation units
The basic purpose for two-tiered fixed annuities is to encourage contract owners to: surrender their contract at retirement annuitize their contract at retirement begin taking periodic withdrawals from the contract at retirement exchange the contract for a new deferred annuity at retirement
annuitize their contract at retirement
For Mary, who is preparing to annuitize her fixed deferred annuity, every $1,000 of annuitized principle will produce $6.33 of monthly income. In this example, $6.33 represents the: annuity purchase rate current declared rate mortality charge guaranteed interest rate
annuity purchase rate
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: never only if the current rate drops to the guaranteed rate of 3 percent any time after the initial rate period only every two years
any time after the initial rate period
A provision found in some deferred annuities, which allows surrender charge-free withdrawals if the interest rate credited to the accumulated value drops below a specified level, is called a(n): bailout provision surrender provision release provision nonforfeiture provision
bailout provision
A type of qualified plan vesting schedule that provides for 100 percent vesting of employer contributions after four years with no vesting prior to that is called a: graded vesting schedule instant vesting schedule cliff vesting schedule full vesting schedule
cliff vesting schedule
In a modified endowment contract, the life insurance policy's cash value grows more quickly than is permitted by the Tax Code, which results primarily from which of the following? the policy's death benefit shrinking the policyowner buying two or more policies and combining them the issuance of a variable life policy excessively large premiums being deposited into the contract within the first seven policy years
excessively large premiums being deposited into the contract within the first seven policy years
At the end of a contract period, market-value adjusted annuity owners can do all of the following, EXCEPT: extend the contract term with a higher guaranteed rate annuitize the contract renew the contract withdraw funds
extend the contract term with a higher guaranteed rate
When a policy has been issued on a substandard (rated) basis, which nonforfeiture option is normally NOT available? cash surrender option extended term option reduced paid-up option cash surrender and withdrawal provision
extended term option
which of the following are payments made for as long as it takes to liquidate the annuity principal, with the contract owner choosing a monthly amount, and the insurance company computing how long it will take to liquidate the principal at the selected amount? fixed amount option period (term) certain option joint life income option joint and last survivor option
fixed amount option Explanation: Under a period or term certain annuity payout, payments are made for the specified number of years and then end. Common term certain payouts are 10, 15, 20, and 25 years.
The minimum guaranteed interest rate ensures that an indexed annuity (IA) contract will grow by at least that amount. Because of that feature, IA contracts are technically which of the following? fixed annuities variable annuities market value adjusted annuities life insurance
fixed annuities
Both indexed annuities and market-value adjusted annuities are generally considered a form of: equity product fixed annuity variable annuity securities-based product
fixed annuity
Jane works for a company that allows employee contributions under a 401(k) plan. When will Jane become fully vested in her plan contributions? immediately after a 90-day probationary period after six months in either 4 years or 7 years, depending on the type of vesting schedule used in the plan
immediately Explanation: While employer contributions to a qualified plan can be subject to a vesting schedule, participants are always fully vested in their own contributions.
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 decrease 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 increase 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.
Stranger-originated life insurance (STOLI) involves a third-party policy ownership arrangement between which of the following parties? investor group and a consumer insurer and a policyowner insured and a business partner agent and the insurer
investor group and a consumer
Jill is the beneficiary of her uncle's life insurance policy. He has selected a settlement option that will pay Jill income payments for life upon his death, with a guaranteed minimum payment period of 10 years even if she were to die during that period. Which settlement option does this describe? straight life income life income with period certain joint and survivor option life income with refund option
life income with period certain
Funds withdrawn from a market-value adjusted annuity (MVA) before its contract period ends are subject to which of the following? surrender charge only withdrawal penalty market-value adjustment and surrender charge interest adjustment
market-value adjustment and surrender charge
An employee who is covered under a non-contributory defined contribution plan in which the employer contributes a specified percentage of salary into each plan participant's account each year is covered under which of the following types of plans? profit-sharing plan 401k plan simplified employee pension (SEP) plan money purchase plan
money purchase plan
Amanda bought a $50,000 ten-year renewable term policy. The premiums she pays for the policy will be: less than for a $50,000 ten-year nonrenewable policy the same as for a $50,000 ten-year nonrenewable policy more than for a $50,000 ten-year nonrenewable policy the same as her initial premium when she decides to renew the policy
more than for a $50,000 ten-year nonrenewable policy
The net single or net level premium of a life insurance policy reflects what two premium factors? mortality and interest interest and expenses morbidity and interest mortality and expenses
mortality and interest
If an applicant submits the first premium payment with an application for life insurance, the agent may give the applicant a temporary insurance receipt that does which of the following? offers interim coverage while the insurer approves the application and formally issues the policy issues permanent coverage for the applicant guarantees that the insurer will accept the application states the insurer's refund policy
offers interim coverage while the insurer approves the application and formally issues the policy
Brad invested $8,000 in a savings plan that lets him lock in the cost of a future college tuition at today's prices. What type of plan is this? prepaid tuition plan college savings plan Education Savings Account Personal Savings Account
prepaid tuition plan
Brad invested $8,000 in a savings plan that lets him lock in the cost of a future college tuition at today's prices. What type of plan is this? prepaid tuition plan college savings plan Education Savings Account Personal Savings Account-term
prepaid tuition plan
Most disability income benefit riders also include which of the following? provision for a waiver of premium payee benefit rider provision for an increased death benefit payor benefit rider
provision for a waiver of premium
All the following are common characteristics of whole life insurance EXCEPT: renewability cash value accrual level death benefit endowment at age 120
renewability
In a fixed deferred annuity that has a current declared interest rate, a change in the current rate results in a new: initial interest rate renewal rate general account rate guaranteed rate
renewal rate
The entire contract provision specifies that all statements the policyowner makes in the application are considered which of the following? warranties representations claims declarations
representations
The entire contract provision specifies that all statements the policyowner makes in the application are considered which of the following? warranties representations claims declarations
representations Explanation: Statements the policyowner makes in the application are representations. They are not referred to as warranties.
When it comes to choosing a financial instrument to fund a qualified retirement account, which of the following features makes an annuity the most suitable product? tax-deductible deposits tax-deferred growth retirement income that is guaranteed for life different investment fund options
retirement income that is guaranteed for life
An entity purchase buy-sell agreement used with a close corporation is called a(n): cross-purchase buy-sell agreement stock redemption agreement close corporation buy-sell agreement equity purchase buy-sell agreement
stock redemption agreement
Amy just retired at age 72 and now wants to annuitize her deferred annuity, which is valued at $250,000. She has no surviving family members and wants to find a payout option that will provide her with the largest possible monthly payment. Which annuity settlement option should she select? life income with period certain option life income with refund guarantee option straight life option joint life income option
straight life option
Which of the following correctly describes an indexed annuity contract owner's option(s) at the end of the contract's term? either surrender or annuitize the contract only surrender, renew, or annuitize the contract surrender the contract only either surrender the contract free or renew it
surrender, renew, or annuitize the contract
All of the following are broad classifications of life insurance EXCEPT: taxable and tax-deferred insurance individual and group insurance permanent and term life insurance fixed and variable products
taxable and tax-deferred insurance
Which of the following parties to a deferred annuity contract has the right to decide on the contract's annuitization date? the insurance company that issued the annuity the annuity owner the annuitant the beneficiary
the annuity owner
Distributions from a deferred annuity before age 59' are exempt from the 10 percent penalty tax in all the following situations EXCEPT: the annuity owner dies the annuity owner becomes disabled the annuity owner uses the money to purchase a home the annuity owner takes the money in substantially equal payments over his or her life
the annuity owner uses the money to purchase a home
The death benefit of a fixed deferred annuity equals: the sum of periodic income payments projected to the annuitant's life expectancy the sum of premiums paid into the annuity the face amount stipulated in the deferred annuity contract. the contract's accumulated value when death occurs
the contract's accumulated value when death occurs
Pamela owns a fixed deferred annuity that she will annuitize next year when she retires. Which of the following is a key factor in determining the percentage of her monthly annuity payment that will be subject to tax? her marginal income tax rate the expected return the interest rate credited to the annuity the capital gains tax rate
the expected return
The insurance policy clause or provision that prohibits an insurer from disputing a claim after the policy has been in force for a certain period is called: the exclusions cause the insuring clause the policyowner's rights provision the incontestability clause
the incontestability clause
What is the primary difference between a revocable and an irrevocable beneficiary? the policyowner's ability or inability to change the beneficiary designation the policyowner's responsibility to pay the premiums the company's responsibility to notify the insured about any changes in its financial condition the requirement for the insurer to tell the beneficiary if the insured has moved
the policyowner's ability or inability to change the beneficiary designation
All the following statements regarding a life insurance policy's accelerated benefits provision are correct EXCEPT: they allow a payout of some portion of the policy's face amount while the insured is alive accelerated benefit proceeds can be used for any purpose to qualify for accelerated benefits, the insured must be certified as having a terminal illness payment of an accelerated benefit reduces the death benefit that is paid out at the insured's death
to qualify for accelerated benefits, the insured must be certified as having a terminal illness
A Section 259 prepaid tuition plan may cover: tuition only tuition and mandatory fees only tuition, mandatory fees, and room and board only tuition, mandatory fees, room and board, and books
tuition and mandatory fees only
For which of the following types of life insurance is a cost-of-living (COL) rider generally unnecessary and therefore unavailable? universal life insurance straight whole life insurance level term life insurance adjustable life insurance
universal life insurance Explanation: Term insurance is a good candidate for a COL rider.
