Chapter 4: Other Life Topics

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? A) tax-shield account plan B) HR 10 plan C) Profit sharing plan D) 401(k) plan

C) Profit sharing plan

What is the purpose of the agent's report?

used by the agent to discuss their personal observations concerning the proposed insured (to paint a better picture of the client)

If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually? A) $3000 B) $13,000 C) $10,000 D) $7,000

A) $3000

In forming an insurance contract, when does acceptance usually occur? A) when an insurer's underwriting approves coverage B) when an insurer delivers the policy C) when an insurer receives an application D) when an insured submits an application

A) when an insurer's underwriting approves coverage

To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters? A) 4 credits B) 6 credits C) 10 credits D) 40 credits

B) 6 credits

What does indemnify mean?

to "restore" an insured to the same financial status as before the loss

What are some differences of being fully insured and partially insured?

- fully insured: met the Quarter of Coverage standards and is eligible to receive SS, Medicare, and survivor benefits - partially insured: qualifies for certain benefits, earned 6 credits during 13-quarter period ending with the quarter in which the insured dies of becomes entitled to disability insurance or old-age insurance benefits

Name the three instances in which insurable interest exists

1. a policy owner is insuring their own life or the life of a family member 2. life of a business partner or key employee 3. someone who has financial obligation to the applicant

What are the consequences of withdrawing money from a traditional IRA prior to 59 1/12?

10% penalty

An IRA purchased by a small employer to cover employees is known as A) Simplified Employee Pension Plan B) 401(k) plan C) Defined contribution plan D) 403(b) plan

A) Simplified Employee Pension Plan

Which of the following terms is used to name the nontaxed return of unused premiums? A) surrender B) dividend C) premium return D) interest

B) dividend

Which of the following is a statement that is guaranteed to be true, and if untrue may breach an insurance contract? A) indemnity B) representation C) Warranty D) Concealment

C) Warranty

What is material misrepresentation? A) any misstatement made by the producer B) concealment C) a statement by the applicant that, upon discovery, would effect the underwriting decision of the insurance company D) any misstatement made by an applicant for insurance

C) a statement by the applicant that, upon discovery, would effect the underwriting decision of the insurance company

Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount? A) Key-person agreement B) split dollar agreement C) buy-sell agreement D) profit and loss agreement

C) buy-sell agreement

Which of the following is NOT true regarding policy loans? A) an insurer can charge interest on outstanding policy loans B) a policy loan may be repaid after the policy is surrendered C) money borrowed from the cash value is taxable D) policy loans can be repaid at death

C) money borrowed from the cash value is taxable

What is the definition of a unilateral contract? A) one author: the company wrote the contract; the insured must accept it as written B) if one party makes a condition, the other party can counteroffer C) one-sided: only one party makes an enforceable promise D) two or more parties of into a contract understanding their may be unequal exchange of value

C) one-sided: only one party makes an enforceable promise

All of the following statements are true regarding the mortgage protection insurance EXCEPT: A) it is used to pay off the balance on the mortgage B) the face amount decreases as the amount owed on the mortgage decreases C) it's a decreasing term insurance D) the face amount remains the same throughout the life of the policy

D) the face amount remains the same throughout the life of the policy

How are income payments from a 403(b) plan taxed?

Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal

When is a policy considered delivered?

When the insurer relinquishes control of the policy by mailing it to the policy owner

What is the purpose of Key Person insurance?

allows a business to insure a key person or officer in an organization whose death would cause financial hardship to the organization

Explain how the cash value of a life insurance policy can be taxed

annual increases in cash value are not taxed since it accumulates on a tax deferred basis. However, upon withdrawal the amount of cash value that exceeds the sum of the premiums paid will be taxed to the policy owner as ordinary income

Who is required to sign the insurance application?

both the agent and the proposed insured (applicant/client)

At what point does coverage begin when an agent issues a conditional receipt?

coverage is effective either on the date of the application or the date of the medical exam, whichever comes last

What is the key feature of converting group term to whole life insurance? What is consistent and what changes, face amount or premium?

employee has right to convert to individual whole life policy without proving insurability at a standard rate, based on attained age. Face amount or death benefit will be equal to groups face amount but premium will be higher.

What type of insurance is group life insurance?

renewable term insurance

Regarding Social Security, what does the term "fully-insured" mean?

someone who has earned 40 quarters of coverage and is entitled to receive SS, Medicare, and survivor benefits

Who owns a group life contract? Who are the parties to the contract? What does the insured receive?

the actual policy/contract is issued to the sponsor of the group (often the employer), the employees are the insured who are issued certificates of the insurance

If a policy is a Modified Endowment Contract (MEC), how are the withdrawals taxed?

the first dollars that are received by the policyowner are considered to be the excess amount of cash value over premiums (gain) and are immediately taxed (this is referred to as the "interest-first rule" or LIFO "last in first out")

What is underwriting?

the risk selection and classification process

If the insured intentionally answers any questions on the application for insurance untruthfully, and the information is material (important) to the insurance, what type of statements are these? Can they void a contact?

Misrepresentations and yes they can void a contract

Describe the differences between Part 1 & Part 2 of the application

Part 1 includes the general questions about applicant including name, age, address, birth date, gender, income, marital status, and occupation Part 2 includes medical information

What's the difference between contributory and noncontributory group life insurance plans?

- noncontributory employer pats 100% of premium (employees are not contributing) - contributory plan premiums are shared between employer and employees

How is Social Security funded?

by the taxes imposed on a worker's earned income

What requirements must be met in order for a retirement plan to be qualified?

plan must be for the exclusive benefit of the employees and their beneficiaries and be formally written and communicated to the employees. Plan must be permanent, approved by IRS, and have a vesting requirement.

What are some of the group characteristics that an underwriter would look at?

purpose, size, turnover, and financial strength of the group

If a person takes benefits at age 62, what is the impact on their retirement benefits?

reduced to about 80% of what would have been paid at age 65

What does representation mean and how does it differ from a warranty?

they are statements believed to be true to the best of one's knowledge. A warranty is an absolutely true statement upon which the validity of the insurance policy depends

Why is it difficult to qualify for Social Security Disability benefits?

they require the covered worker to be unable to engage in any substantial, gainful employment

Who is eligible to be covered under a Keogh Plan?

to be covered under this retirement plan, the person must be - self-employed or a partner working part/full-time - owns at least 10% of the business - 21 years old - worked for self-employed person for at least 1 year - worked at least 1000 hours per year

All of the following could own group life insurance EXCEPT: A) a debtor group B) a group needing low-cost life insurance C) a group sponsored by an employer D) an alumni group

B) a group needing low-cost life insurance

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as A) binding contracts B) contracts of adhesion C) unilateral contracts D) aleatory contracts

B) contracts of adhesion

In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage the person must have been insured under the group plan for how many years? A) 1 B) 3 C) 5 D) 10

C) 5