4. Taxes, Retirement, and Other Insurance Concepts
What does "liquidity" refer to in a life insurance policy? AThe policyowner receives dividend checks each year. BThe insured receives payments each month in retirement. CCash values can be borrowed at any time. DThe death benefit replaces the assets that would have accumulated if the insured had not died.
C.Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values
To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters? A4 credits B6 credits C10 credits D40 credits
B.6 credits To be considered currently (or partially) insured, an individual must have earned 6 credits during the last 13-quarter period.
Which of the following is true regarding the insurance amount in a credit life policy? AThe amount of coverage can be greater than the amount owed. BCreditor can only insure the debtor for the amount owed. CCreditor may insure the debtor for an unlimited amount of coverage. DAllowable amount of coverage is determined by the State Insurance Commissioner
B.Creditor can only insure the debtor for the amount owed Credit life insurance cannot pay out more than the balance of the debt, so that there is no financial incentive for the death of the insured.
An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer? A$8,000, tax on growth only B$10,000, tax on growth only C$10,000, no tax consequence D$8,000, no tax consequence
C.$10,000, no tax consequence During an IRA direct transfer (or direct rollover), the full amount gets reinvested from one plan to the other.
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT AThe employer pays a bonus to a selected employee to fund the policy. BIt is considered a nonqualified employee benefit. CThe policy is owned by the company. DAny type of insurance policy may be used.
C.The policy is owned by the company. The policy is owned by the employee.
What is the name of the insured who enters into a viatical settlement? AThird party BContingent CViatical broker DViator
D.Viator Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract
All of the following are examples of third-party ownership of a life insurance policy EXCEPT AAn insured couple purchases a life insurance policy insuring the life of their grandson. BA company purchases a life insurance policy on their manager, who is an important part of the operation. CWhen an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company. DAn insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.
D.An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? APremiums are tax deductible by the key employee. BPremiums are tax deductible as a business expense. CPremiums are taxable to the employee. DPremiums are not tax deductible as a business expense
D.Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.
Traditional IRA contributions are ADeducted based on the income level. BNever tax deductible. CPartially tax deductible depending on the income level. DTax deductible.
D.Tax deductible The following taxation rules apply to contributions made to traditional IRA plans: tax-deductible contributions for the year of the contribution (based on the person's income); contributions must be made in "cash" in order to be tax deductible; excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA; and tax-deferred earnings are not taxed until withdrawn
Which of the following is an example of liquidity in a life insurance contract? AThe death benefit paid to the beneficiary BThe flexible premium CThe money in a savings account DThe cash value available to the policyowner
Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.
Which of the following is INCORRECT concerning a noncontributory group plan? AThey help to reduce adverse selection against the insurer. BThey require 100% employee participation. CThe employer pays 100% of the premiums. DThe employees receive individual policies
D.The employees receive individual policies The employer receives a master policy, and employees receive a certificate of insurance.
According to the state nonforfeiture law for life insurance policies, insurers must offer at least one of the following nonforfeiture options EXCEPT AReduction of premium BReduced paid-up CExtended term DShortened benefit period
A.Reduction of premium Reduction of premium is not a nonforfeiture option (it's a dividend option). The other answer choices are the required nonforfeiture options in life insurance policies issued in this state.
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT AThe employer pays a bonus to a selected employee to fund the policy. BIt is considered a nonqualified employee benefit. CThe policy is owned by the company. DAny type of insurance policy may be used.
C The policy is owned by the company. The policy is owned by the employee
Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT? ASEPs have a higher tax deductible contribution limit than an IRA. BEmployer contributions are not included in the employee's gross income. CSEPs are suitable for large companies. DSEPs allow the employer to make annual tax deductible contributions up to 25% of an employee's earned income.
C.SEPs are suitable for large companies An SEP is a benefit plan that is designed to be provided by a small employer for the benefit of the employees
When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n) AAleatory contract. BExecutive bonus. CKey person policy. DFraternal association.
When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called an executive bonus
In which of the following instances would the premium be tax deductible? APremiums paid by an employer on a $30,000 group term life insurance plan for employees BPremiums paid by an individual on his/her own life insurance CPremiums paid by a mother on her son's policy DPremiums paid by an employer on the life of a key person
A.Premiums paid by an employer on a $30,000 group term life insurance plan for employees As a general rule, premiums paid for life insurance are not tax deductible. The exception to this rule is when an employer buys group term life insurance for his employees since it is considered a business expense
All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT AFunds accumulate on a tax-deferred basis. BEmployee and employer contributions are not counted as income to the employee for income tax purposes. CAt distribution, all amounts received by the employee are tax free. DEmployer contributions are tax deductible as ordinary business expense
C.At distribution, all amounts received by the employee are tax free Funds in a qualified plan accumulate on a tax-deferred basis; however, at distribution any amount received by the employee will be treated as ordinary income for tax purposes.
The type of insurance sold to a debtor and designed to pay the amount due on a loan if the debtor dies before the loan is repaid is called ADecreasing whole life. BMultiple Protection insurance. CCredit life. DCredit health.
C.Credit life Credit life is most often sold by lenders and is term insurance written with a face amount and term that is matched to the amount and length of the loan period. Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor
Which of the following best defines the "owner" as it pertains to life settlement contracts? AThe insurance provider BThe policyowner of the life insurance policy CA financial entity that sponsors the transaction DA fiduciary for the contract
The term owner refers to the owner of the policy who may seek to enter into a life settlement contract. The term does not include an insurance provider, a qualified institutional buyer, a financing entity, a special purpose entity, or a related provider trust
Which of the following types of insurance policies is most commonly used in credit life insurance? AEquity indexed life BDecreasing term CIncreasing term DWhole life
B.Decreasing term Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. It is usually written as decreasing term insurance.
Which of the following is the best reason to purchase life insurance rather than annuities? ATo liquidate a sum of money over a lifetime BTo create an estate CTo liquidate a sum of money over a period of years DTo create regular income payments
B.To create an estate With insurance, the death benefit creates an immediate estate should the insured die.
An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover? A$10,000, 60 days B$10,000, 30 days C$8,000, 60 days D$8,000, 30 days
C.$8,000, 60 days Generally, IRA rollovers must be completed within 60 days from the time the money is taken out of the first plan. If the distribution from the first plan is paid directly to the participant, 20% of the distribution must be withheld by the payor
What does "liquidity" refer to in a life insurance policy? AThe insured receives payments each month in retirement. BCash values can be borrowed at any time. CThe death benefit replaces the assets that would have accumulated if the insured had not died. DThe policyowner receives dividend checks each year
Liquidity in life insurance refers to availability of cash to the insured through cash values
Traditional IRA contributions are APartially tax deductible depending on the income level. BTax deductible. CDeducted based on the income level. DNever tax deductible.
B.Tax deductible. The following taxation rules apply to contributions made to traditional IRA plans: tax-deductible contributions for the year of the contribution (based on the person's income); contributions must be made in "cash" in order to be tax deductible; excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA; and tax-deferred earnings are not taxed until withdrawn.
Which of the following is NOT allowed in credit life insurance? ACreditor requiring that a debtor buys insurance from a certain insurer BCreditor having a collateral assignment on the policy CCreditor requiring that a debtor has a life insurance DCreditor becoming a policy beneficiary
A.Creditor requiring that a debtor buys insurance from a certain insurer In credit life insurance, creditor may require that the debtor has a life insurance, but they cannot tell you who to buy the insurance from
What does "liquidity" refer to in a life insurance policy? AThe insured receives payments each month in retirement. BCash values can be borrowed at any time. CThe death benefit replaces the assets that would have accumulated if the insured had not died. DThe policyowner receives dividend checks each year
B.Cash values can be borrowed at any time Liquidity in life insurance refers to availability of cash to the insured through cash values.
Which of the following would be considered a nonqualified retirement plan? AKeogh plan BRoth IRA CSplit-dollar plan D401(k)
C.Split-dollar plan Examples of nonqualified plans are individual annuities and deferred compensation plans for highly paid executives, split-dollar insurance arrangements, and Section 162 executive bonus plans
Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance? AReplacement rule BReinstatement rule CConversion rule DDisclosure rule
A.Replacement rule Anytime a new policy is issued that replaces or modifies existing insurance, a replacement form must be submitted to the ceding company
In which of the following instances would the premium be tax deductible? APremiums paid by a mother on her son's policy BPremiums paid by an employer on the life of a key person CPremiums paid by an employer on a $30,000 group term life insurance plan for employees DPremiums paid by an individual on his/her own life insurance
C.Premiums paid by an employer on a $30,000 group term life insurance plan for employees As a general rule, premiums paid for life insurance are not tax deductible. The exception to this rule is when an employer buys group term life insurance for his employees since it is considered a business expense
Which of the following describes the tax advantage of a qualified retirement plan? AThe earnings in the plan accumulate tax deferred. BDistributions prior to age 59½ are tax deductible. CEmployer contributions are deductible as a business expense when the employee receives benefits. DEmployer contributions are not taxed when paid out to the employee.
A The earnings in the plan accumulate tax deferred Contributions are tax deferred, and earnings on the money in the plan accrue on a tax-deferred basis
An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called? A401(k) plan BTax-sheltered account plan CHR 10 plan DProfit sharing plan
A profit sharing plan is one where the employer will contribute monies into an employee's retirement plan when the company shows a profit. The others are all qualified plans, but company profit isn't an issue with them.
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then AThe benefit is received tax free. BThe benefit is subject to the exclusionary rule. CIRS has no jurisdiction. DThe benefit is received as taxable income.
AThe benefit is received tax free. Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person
When an employee terminates coverage under a group insurance policy, coverage continues in force AUntil the employee can obtain coverage under a new group plan. BUntil the employee notifies the group insurance provider that coverage conversion policy is issued. CFor 31 days. DFor 60 days.
An employee has 31 days under the conversion privilege to convert to an individual policy
An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover? A$10,000, 30 days B$8,000, 60 days C$8,000, 30 days D$10,000, 60 days
B.$8,000, 60 days Generally, IRA rollovers must be completed within 60 days from the time the money is taken out of the first plan. If the distribution from the first plan is paid directly to the participant, 20% of the distribution must be withheld by the payor
Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT? APremiums are determined by age, occupation, and individual underwriting. B100% participation of members is required in noncontributory plans. CEach member covered receives a policy. DCoverage cannot be converted when an individual leaves the group
B.100% participation of members is required in noncontributory plans If the employer pays all of the premium, then all employees must be included.
To which of the following situations does the Replacement Regulation apply? ACoverage under a binding receipt issued by the same company BA whole life policy reissued with reduction in cash value CGroup life insurance DAn immediate annuity purchased with proceeds from an existing policy
B.A whole life policy reissued with reduction in cash value Replacement means any transaction in which new life insurance or a new annuity is to be purchased and it is known or should be known to the proposing producer that by reason of the transaction, existing life insurance or annuities have been or will be converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values. All other answer choices are also exceptions to the replacement rules
In which of the following instances would the premium be tax deductible? APremiums paid by an employer on the life of a key person BPremiums paid by an employer on a $30,000 group term life insurance plan for employees CPremiums paid by an individual on his/her own life insurance DPremiums paid by a mother on her son's policy
B.Premiums paid by an employer on a $30,000 group term life insurance plan for employees As a general rule, premiums paid for life insurance are not tax deductible. The exception to this rule is when an employer buys group term life insurance for his employees since it is considered a business expense
How are contributions to a tax-sheltered annuity treated with regards to taxation? AThey are taxed as income for the employee, but are tax free upon withdrawal. BThey are not included as income for the employee, but are taxable upon distribution. CThey are never taxed. DThey are taxed as income for the employee.
B.They are not included as income for the employee, but are taxable upon distribution Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal.
A life insurance policy used to fund an agreement that contractually establishes the intent of someone to purchase a business upon the insured business owner's death is a AStock redemption plan. BBuy-sell agreement. CKey person policy. DSplit-dollar plan.
Buy-Sell agreements are used to contractually establish the intent of someone else to purchase the business upon the insured's death, and to set a value (purchase price) on a business. Life insurance is used to fund the buy-sell agreement. Any type of life insurance may be purchased to provide the necessary funds for the agreement. Insurance can be used to either fully or partially fund the buy-sell agreement
A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as ASurvivorship insurance BJuvenile protection provision CSurvivor protection DLife planning
C.Survivor protection Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection.
Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? AThe key employee is the owner and beneficiary. BThe key employee is the owner and the employer is the beneficiary. CThe employer is the owner and beneficiary. DThe employer is the owner and the key employee is the beneficiary
C.The employer is the owner and beneficiary. With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary
The initial amount of credit life insurance may NOT exceed AAn amount set by statute and adjusted regularly for inflation. BThe borrower's monthly income. CThe borrower's annual income. DThe amount to be repaid under the contract
DThe amount to be repaid under the contract The initial amount of credit life insurance may not exceed the total amount repayable under the contract of indebtedness
A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a AKey person plan. BSplit-dollar plan. CStock redemption plan. DCross-purchase plan
In a Cross-Purchase Plan each partner involved purchases insurance on the life of each of the other partners. With a cross-purchase plan, each partner is the owner, premium-payor, and beneficiary of the life insurance on the lives of the other partners. The amount of the life insurance is equal to each partner's share of the purchase price of the deceased partner's interest in the business.
Which of the following is INCORRECT concerning a noncontributory group plan? AThey help to reduce adverse selection against the insurer. BThey require 100% employee participation. CThe employer pays 100% of the premiums. DThe employees receive individual policies.
The employer receives a master policy, and employees receive a certificate of insurance
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then AIRS has no jurisdiction. BThe benefit is received as taxable income. CThe benefit is received tax free. DThe benefit is subject to the exclusionary rule
C.The benefit is received tax free. Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.
When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit? AThe insurance company BThe insured's estate CThe primary beneficiary's estate DThe insured's contingent beneficiary
D.The insured's contingent beneficiary Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated.
Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors? AMorbidity BLife expectancy CMortality rate DRisk exposure
Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).
Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT? APremiums are determined by age, occupation, and individual underwriting. B100% participation of members is required in noncontributory plans. CEach member covered receives a policy. DCoverage cannot be converted when an individual leaves the group
If the employer pays all of the premium, then all employees must be included
An individual covered under a group life insurance policy may convert the policy to any of the following EXCEPT A20-pay life. BLife paid up at age 65. CWhole Life. D15-year level term.
D. 15-year level term. Individuals and dependents insured on a group life policy may convert to an individual policy issued by the same insurer. They can convert to any individual policy except term.
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then AThe benefit is subject to the exclusionary rule. BIRS has no jurisdiction. CThe benefit is received as taxable income. DThe benefit is received tax free.
D.The benefit is received tax free Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person
A key person insurance policy can pay for which of the following? ACosts of training a replacement BLoss of personal income CWorkers compensation DHospital bills of the key employee
A.Costs of training a replacement A key person insurance policy will pay for costs of running the business and replacing the employee.
Is it illegal for an insurance company to advertise that it is the leader of the financial industry and therefore pays the most claims each year? ANo, as long as the advertisement has a disclaimer that all facts are misleading. BNo CYes; advertisements must not mislead the public in terms of financial standing. DYes, as long as no one can prove otherwise.
C.Yes; advertisements must not mislead the public in terms of financial standing Advertisements must not mislead the public or attempt to induce a person to purchase insurance because of false advertisement.
All of the following are business uses of life insurance EXCEPT AFunding business continuation agreements. BFunding against general company financial loss. CCompensating executives. DFunding against financial loss caused by the death of a key employee
Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees.
During replacement of life insurance, a replacing insurer must do which of the following? ADesignate a new producer for a replaced policy BSend a copy of the Notice Regarding Replacement to the Department of Insurance CObtain a list of all life insurance policies that will be replaced DGuarantee a replacement for each existing policy
C. Obtain a list of all life insurance policies that will be replaced The replacing insurance company must require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant, and send each existing insurance company a written communication advising of the proposed replacement
Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner? AA buy-sell agreement BFamily term rider CThird-party ownership DAn irrevocable beneficiary
C.Third-party ownership Contracts that are owned by someone other than the insured are known as third-party ownership. Most policies involving third-party ownership are written in business situations or for minors in which the parent owns the policy.
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT AThe employer pays a bonus to a selected employee to fund the policy. BIt is considered a nonqualified employee benefit. CThe policy is owned by the company. DAny type of insurance policy may be used
The policy is owned by the employee
An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen? AThe insurer will pay a reduced death benefit to the beneficiary. BThe insurer will pay the death benefit minus one month's premium. CThe insurer will pay nothing because the employee has terminated his group insurance and hasn't started the individual one. DThe insurer will pay the full death benefit from the group policy to the beneficiary
D.The insurer will pay the full death benefit from the group policy to the beneficiary The employee usually has a period of 31 days after terminating from the group in order to exercise the conversion option. During this time, the employee is still covered under the original group policy.
Which of the following documents must be provided to the policyowner or applicant during policy replacement? ANotice Regarding Replacement BDisclosure Authorization Form CBuyer's Guide and Policy Summary DPolicy illustrations
A.Notice Regarding Replacement During policy replacement, the replacing producer must present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer.
All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT AEmployee and employer contributions are not counted as income to the employee for income tax purposes. BAt distribution, all amounts received by the employee are tax free. CEmployer contributions are tax deductible as ordinary business expense. DFunds accumulate on a tax-deferred basis.
B.At distribution, all amounts received by the employee are tax free. Funds in a qualified plan accumulate on a tax-deferred basis; however, at distribution any amount received by the employee will be treated as ordinary income for tax purposes.
Which of the following is NOT an example of a business use of Life Insurance? AExecutive Bonuses BKey Person CWorkers Compensation DBuy-sell Funding
C.Workers Compensation Workers Compensation is a benefit payable when a worker is injured by a work-related injury, regardless of fault or negligence. It is not considered a business use of insurance.
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? ACompany is the owner, and the company pays the premium. BExecutive is the owner, and the executive pays the premium. CCompany is the owner, but the executive pays the premium. DBoard of directors is the owner, and the board of directors pays the premium
B.Executive is the owner, and the executive pays the premium Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an AModified endowment contract. BAccelerated benefit policy. CEndowment. DNonqualified annuity
A.Modified endowment contract. Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract
What does "liquidity" refer to in a life insurance policy? AThe death benefit replaces the assets that would have accumulated if the insured had not died. BThe policyowner receives dividend checks each year. CThe insured receives payments each month in retirement. DCash values can be borrowed at any time
Liquidity in life insurance refers to availability of cash to the insured through cash values.
Death benefits payable to a beneficiary under a life insurance policy are generally AExempt from income taxation if over $7,000. BNot subject to income taxation by the Federal Government. CSubject to income taxation by the Federal Government. DExempt from income taxation if under $7,000.
When premiums are paid with after tax dollars, the death benefit is generally not subject to federal income taxation
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? ABoard of directors is the owner, and the board of directors pays the premium. BCompany is the owner, and the company pays the premium. CExecutive is the owner, and the executive pays the premium. DCompany is the owner, but the executive pays the premium
C.Executive is the owner, and the executive pays the premium Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income
An individual wants to purchase a life insurance policy. His agent asks if the transaction will involve replacing any existing life insurance policies. If the customer replies, "Yes," which of the following best describes the agent's next step? AThe agent must get his supervisor involved in the transaction. BThe agent has no further duties. CThe agent must provide a replacement notice to the applicant. DThe agent must collect the existing policies and turn them over to the replacing insurer.
C.The agent must provide a replacement notice to the applicant. In a replacement transaction, an agent must present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the agent.
An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer? A$8,000, no tax consequence B$8,000, tax on growth only C$10,000, tax on growth only D$10,000, no tax consequence
D.$10,000, no tax consequence During an IRA direct transfer (or direct rollover), the full amount gets reinvested from one plan to the other.
An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize? AEstate liquidation BNonpayment of premium CChange of beneficiary DViatical settlement
D.Viatical settlement A viatical statement allows an insured with a life-threatening condition to sell the existing policy in order to receive benefits when they are most needed. Viators typically receive a percentage of the policy's face value from the person who purchases the policy.
The usage of words or symbols that are similar to what entity is prohibited in life insurance advertisements? AInsurer BDepartment of Insurance CStock DFederal government
D.Federal government No combination of words, symbols, etc. similar to those of state or federal government agencies may be used that might mislead prospective insureds into believing the solicitation is connected with a government agency
Who is a third-party owner? AAn insurer who issues a policy for two people BAn employee in a group policy CAn irrevocable beneficiary DA policyowner who is not the insured
Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.
Which of the following would be deducted from the death benefit paid to a beneficiary, if a partial accelerated death benefit had been paid while the insured was still alive? AAmount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated benefit BThere are no deductions taken from death benefits. CPenalty imposed for early withdrawal of the death benefit, plus the amount of earnings lost by the insurance company in interest income D10% federal death benefit income tax, plus the amount of the accelerated benefit
A.Amount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated benefit If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income.
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an AModified endowment contract. BAccelerated benefit policy. CEndowment. DNonqualified annuity.
A.Modified endowment contract. Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract.
All of the following would be different between qualified and nonqualified retirement plans EXCEPT ATaxation on accumulation BTaxation of withdrawals CTaxation of contributions DIRS approval requirements
A.Taxation on accumulation Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.
What percentage of a company's employees must take part in a noncontributory group life plan? A0% B25% C75% D100%
D.100% If the employer pays all of the premium, all employees must be covered to avoid adverse selection
A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as ASurvivor protection BLife planning CSurvivorship insurance DJuvenile protection provision
A.Survivor protection Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection.
What is the purpose of key person insurance? ATo maintain an account that insures the owner of a company remains solvent BTo lessen the risk of financial loss because of the death of a key employee CTo provide health insurance to the families of key employees DTo insure retirement benefits are available to all key employees
B.To lessen the risk of financial loss because of the death of a key employee A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills or business contacts. A business can lessen the risk of such loss by the use of key person insurance
All of the following are personal uses of life insurance EXCEPT AEstate creation. BCash accumulation. CBuy-sell agreement. DSurvivor protection.
C.Buy-sell agreement. Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. A buy-sell agreement is for business uses of life insurance.
In life insurance policies, cash value increases AAre income taxable immediately. BAre taxed annually. CAre only taxed when the owner reaches age 65. DGrow tax deferred
D.Grow tax deferred. Generally life insurance cash values are only income taxed if the policy is surrendered (totally or partially) and the cash value exceeds the premiums paid. Question 2 of 15
Which of the following is the best reason to purchase life insurance rather than annuities? ATo liquidate a sum of money over a period of years BTo create regular income payments CTo liquidate a sum of money over a lifetime DTo create an estate
D.To create an estate With insurance, the death benefit creates an immediate estate should the insured die.
