Chapter 4
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
buy-sell agreement
All of the following are business uses of life insurance EXCEPT
funding against general company financial loss
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?
life expectancy
Which of the following is NOT an example of a business use of Life Insurance
workers compensation
An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?
$3,000
All of the following are examples of third-party ownership of a life insurance policy EXCEPT
An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.
A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a
Cross purchase plan
If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is
Fully insured
All of the following would be different between qualified and nonqualified retirement plans EXCEPT
Taxation on accumulation
Which of the following best defines the "owner" as it pertains to life settlement contracts?
The policyowner of the life insurance policy
Who is a third-party owner?
A policyowner who is not the insured
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?
Premiums are not tax deductible as a business expense.
An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy?
She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan.
Which of the following is the best reason to purchase life insurance rather than an annuity?
To create an estate
What is the purpose of key person insurance?
To lessen the risk of financial loss because of the death of a key employee
Which of the following terms is used to name the nontaxed return of unused premiums?
dividend
In which of the following instances would the premium be tax deductible?
Premiums paid by an employer on a $30,000 group term life insurance plan for employees
Which of the following is INCORRECT concerning a noncontributory group plan?
The employees receive individual policies
Who is the owner and who is the beneficiary on a Key Person Life Insurance policy?
The employer is the owner and beneficiary
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
Survivor protection
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then
The benefit is received tax free
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?
The insurer will pay the full death benefit from the group policy to the beneficiary.
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?
100% participation of members is required in noncontributory plans.
Which of the following is an example of liquidity in a life insurance contract
The cash value available to the policyowner
What is the main purpose of the Seven-pay Test?
It determines if the insurance policy is an MEC.
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an
Modified Endowment Contract
All of the following employees may use a 403(b) plan for their retirement EXCEPT
CEO of a private corporation
