Chapter Four: Retirement and Other Insurance Concepts

All of the following are business uses of life insurance EXCEPT A. Funding business continuation agreements. B. Funding against company's general financial loss. C. Compensating executives. D. Funding against financial loss caused by the death of a key employee.

B

A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a A. Split-dollar plan. B. Stock redemption plan. C. Cross-purchase plan. D. Key person plan.

C

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT A. The employer pays a bonus to a selected employee to fund the policy. B. It is considered a nonqualified employee benefit. C. The policy is owned by the company. D. Any type of insurance policy may be used.

C

If a retirement plan or annuity is "qualified," this means A. It accepts after-tax contributions. B. It is noncancellable. C. It is approved by the IRS. D. It has a penalty for early withdrawal.

C

Which of the following best defines the "owner" as it pertains to life settlement contracts? A. A financial entity that sponsors the transaction B. A fiduciary for the contract C. The insurance provider D. The policyowner of the life insurance policy

D

Which of the following is NOT an example of a business use of Life Insurance? A. Buy-sell Funding B. Executive Bonuses C. Key Person D. Workers Compensation

D

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then A. The benefit is received tax free. B. The benefit is subject to the exclusionary rule. C. IRS has no jurisdiction. D. The benefit is received as taxable income.

A

A key person insurance policy can pay for which of the following? A. Costs of training a replacement B. Loss of personal income C. Workers compensation D. Hospital bills of the key employee

A

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 A. Survivor protection. B. Life planning. C. Survivorship insurance. D. Juvenile protection provision.

A

All of the following are personal uses of life insurance EXCEPT A. Buy-sell agreement. B. Survivor protection. C. Estate creation. D. Cash accumulation.

A

In a life settlement contract, whom does the life settlement broker represent? A. The owner B. The insurer C. The beneficiary D. The life settlement intermediary

A

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 A. Stock redemption plan. B. Buy-sell agreement. C. Key person policy. D. Split-dollar plan.

B

All of the following are examples of third-party ownership of a life insurance policy EXCEPT A. When an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company. B. An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. C. An insured couple purchases a life insurance policy insuring the life of their grandson. D. A company purchases a life insurance policy on their manager, who is an important part of the operation.

B

All of the following employees may use a 403(b) plan for their retirement EXCEPT A. The vice president of a charitable organization. B. The CEO of a private corporation. C. A school bus driver. D. A part-time classroom aide.

B

Death benefits payable to a beneficiary under a life insurance policy are generally A. Exempt from income taxation if over $10,000. B. Not subject to income taxation by the Federal Government. C. Subject to income taxation by the Federal Government. D. Exempt from income taxation if under $10,000.

B

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an A. Nonqualified annuity. B. Modified endowment contract. C. Accelerated benefit policy. D. Endowment.

B

What is the main purpose of the Seven-pay Test? A. It guarantees the minimum interest. B. It determines if the insurance policy is a MEC. C. It requires level premium payments for 7 years. D. It ensures that the policy benefits are paid out in 7 years.

B

What is the purpose of key person insurance? A. To maintain an account that insures the owner of a company remains solvent B. To lessen the risk of financial loss because of the death of a key employee C. To provide health insurance to the families of key employees D. To insure retirement benefits are available to all key employees

B

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) A. Aleatory contract. B. Executive bonus. C. Key person policy. D. Fraternal association.

B

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated? A. Those who have no history of claims B. Those who have been insured under the plan for at least 5 years C. Those who have worked in the company for at least 3 years D. Those who have dependents

B

Which of the following is the best reason to purchase life insurance rather than an annuity? A. To liquidate a sum of money over a lifetime B. To create an estate C. To liquidate a sum of money over a period of years D. To create regular income payments

B

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? A. Morbidity B. Life expectancy C. Mortality rate D. Risk exposure

B

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? A. Coverage cannot be converted when an individual leaves the group. B. Premiums are determined by age, occupation, and individual underwriting. C. 100% participation of members is required in noncontributory plans. D. Each member covered receives a policy.

C

Who is a third-party owner? A. An employee in a group policy B. An irrevocable beneficiary C. A policyowner who is not the insured D. An insurer who issues a policy for two people

C

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? A. Company is the owner, but the executive pays the premium. B. Board of directors is the owner, and the board of directors pays the premium. C. Company is the owner, and the company pays the premium. D. Executive is the owner, and the executive pays the premium.

D

Which of the following is INCORRECT concerning a noncontributory group plan? A. They help to reduce adverse selection against the insurer. B. They require 100% employee participation. C. The employer pays 100% of the premiums. D. The employees receive individual policies.

D