470 Quiz 2

Denise's employer provides $500,000 of group term life insurance. If Denise dies today, how much of the life insurance proceeds will be subject to income taxes? 1.) $0 2.) $50,000 3.) $450,000 4.) $500,000

1.) $0

All of the following statements about long-term care insurance are true EXCEPT 1.) Premiums can be reduced by electing shorter elimination periods. 2.) A common benefits trigger is the inability to perform a certain number of activities of daily living. 3.) Protection against inflation is usually made available as an optional benefit. 4.) Policies currently sold are guaranteed renewable.

1.) Premiums can be reduced by electing shorter elimination periods.

All the following will tend to increase the cost of long-term care insurance, EXCEPT: 1.) An increase in the insured's age at the time of issue 2.) An increase in the elimination period 3.) An increase in the benefit duration 4.) The inclusion of home health care benefits

2.) An increase in the elimination period

Which of the following statements about disability and disability income insurance is (are) true? I.Most disability income policies replace 100 percent of gross earnings. II.The probability of being disabled before age 65 is much higher than commonly believed. 1.) I only 2.) II only 3.) Both I and II 4.) Neither I nor II

2.) II only

Which of the following statements about long-term care insurance is (are) true? I.Long-term care insurance is inexpensive, especially if purchased at older ages. II.Purchasers have a choice of daily benefits and benefit periods. 1.) I only 2.) II only 3.) Both I and II 4.) Neither I nor II

2.) II only

All the following statements concerning term life insurance are correct, EXCEPT: 1.) It provides temporary protection. 2.) It is usually not renewable. 3.) It is usually convertible. 4.) It usually has no cash value.

2.) It is usually not renewable.

All the following statements concerning the second-to-die policy are correct, EXCEPT: 1.) It is also called survivorship life. 2.) It pays half the death benefit at the first death and the other half upon the second death. 3.) It is usually whole life, but it may be term insurance. 4.) It is often used in estate planning.

2.) It pays half the death benefit at the first death and the other half upon the second death.

All the following are advantages of whole life insurance, EXCEPT: 1.) It provides permanent protection. 2.) It provides a hedge against inflation. 3.) It includes an element of compulsory savings. 4.) It allows exchanges for other kinds of life insurance.

2.) It provides a hedge against inflation.

When are dividends from a life insurance policy taxable income? 1.) Under no circumstances. 2.) The dividends exceed the amount of premiums paid. 3.) The cash value exceeds the amount of premiums paid. 4.) The policy is a modified endowment contract (MEC)

2.) The dividends exceed the amount of premiums paid.

Ajax Corporation has a group disability income insurance plan covering its employees. Ajax pays ¾ of the premium cost, and the employees pay ¼. In this situation, which of the following statements concerning the federal income tax aspects of the plan is correct? 1.) The employee's share of the premium cost is deductible for the employee. 2.) The employer's share of the premium cost is deductible for the employer. 3.) The benefits paid for by the employer are tax-free to the employee. 4.) The benefits paid for by the employee are taxable to the employee.

2.) The employer's share of the premium cost is deductible for the employer.

All the following statements concerning loans taken under life insurance policies are correct, EXCEPT: 1.) The loans can accrue interest at a variable rate. 2.) The policyowner can borrow a maximum of 50% of the policy's cash value. 3.) No repayment schedule is required for these loans. 4.) Loans can reduce policy benefits and the level of policyowner dividends.

2.) The policyowner can borrow a maximum of 50% of the policy's cash value.

All of the following statements regarding a MEC are correct EXCEPT: 1.) A life insurance policy that fails the 7 pay test is deemed a MEC. 2.) Withdrawals from a MEC are subject to FIFO tax treatment 3.) A 10% penalty applies to withdrawals from a MEC prior to age 59½. 4.) The primary issue on a MEC is the taxation of withdrawals (loans) because the death benefit is generally tax free.

2.) Withdrawals from a MEC are subject to FIFO tax treatment.

Kevin has an individual disability income policy that his insurer agrees to keep in force until age 60. However, the company has the right to increase the premium each year for the underwriting class in which Kevin has been placed. Which renewal provision is found in Kevin's policy? 1.) noncancellable 2.) guaranteed renewable 3.) conditionally renewable 4.) nonrenewable.

2.) guaranteed renewable

Joe is 60 years of age and his wife Sandy is 56. Joe and Sandy decided to take a dream vacation and borrowed from their life insurance policies. Sandy's policy was a MEC, but Joe's was not. If they each borrowed $5,000 and they are in the 25% income tax bracket, what taxes will they pay on the loans? 1.) $0 2.) $1,250 3.) $1,750 4.) $2500

3.) $1,750

Which of the following statements concerning universal life insurance is (are) correct? 1. The policyowner has no ability to direct the investment of the policy's cash values. 2. Universal life policy owners can choose the amount of premium they pay into their policies, subject to insurer minimums and maximums. 1.) 1 only 2.) 2 only 3.) Both 1 and 2 4.) Neither 1 nor 2

3.) Both 1 and 2

Which of the following statements concerning disability income insurance is (are) correct? I) It covers periods when the insured is unable to work because of injury or sickness. II) It is designed to restore at least part of lost work earnings. 1.) I only 2.) II only 3.) Both I and II 4.) Neither I nor II

3.) Both I and II

What is the typical trigger for payment of benefits under a long-term care insurance policy? 1.)Inability to perform the regular duties of any occupation 2.) Inability to qualify for Medicaid benefits 3.) Inability to perform at least two activities of daily living 4.) Inability to manage one's own affairs competently

3.) Inability to perform at least two activities of daily living.

Which of the following statements about group short-term disability income plans is true? 1.) Most plans have a short elimination period for accidents but cover sickness from the first day of disability 2.) Disability is usually defined in terms of a worker being unable to work in any substantial, gainful, employment. 3.) The amount of disability income benefits typically is equal to some percentage of a worker's normal earnings. 4.) Most short-term plans cover occupational disability only

3.) The amount of disability income benefits typically is equal to some percentage of a worker's normal earnings.

Which of the following are advantages of universal life insurance? The policy owner may make partial withdrawals of cash values. (2) It can be exchanged for other kinds of life insurance. (3) It provides permanent protection. (4) It provides tax-deferred investment income. 1.) (1) and (2) only 2.) (1) and (4) only 3.) (2) and (3) only 4.) (1), (2), (3), and (4)

4.) (1), (2), (3), and (4)

Which of the following statements concerning the definitions of total disability used in individual disability income policies is correct? 1.) The own-occupation is the narrowest and strictest definition. 2.) The any-occupation definition requires an insurer to pay full benefits even if the person returns to work. 3.) A dual definition allows the insured to use the definition that is the most liberal. 4.) Currently, insurers are more likely to use a more restrictive definition than own-occupation.

4.) Currently, insurers are more likely to use a more restrictive definition than own-occupation.

Individual long-term care insurance policies may cover which of the following types of care? I) Custodial care II) Assisted-living care III) Adult day care centers 1.) III only 2.) I and II only 3.) I and III only 4.) I, II, III are all correct

4.) I, II, III are all correct.

All the following statements concerning universal life insurance are correct, EXCEPT: 1.) It is a flexible-premium policy. 2.) It provides lifetime protection. 3.) It "unbundles" the protection and savings components. 4.) It prohibits cash withdrawals.

4.) It prohibits cash withdrawals.

Which of the following statements concerning the federal income tax treatment of individual disability income insurance is correct? 1.) Premiums are deductible, and benefits are tax-free. 2.) Premiums are not deductible, and benefits are ordinary income. 3.) Premiums are deductible, and benefits are ordinary income. 4.) Premiums are not deductible, and benefits are tax-free.

4.) Premiums are not deductible and benefits are tax-free.

Which of the following statements describes a typical "benefit trigger" under a long-term care contract? 1.) The person is unable to perform the regular duties of his or her own occupation. 2.) The person is certified to require custodial care, nursing home care, or home health care 3.) The person has given away assets to qualify for Medicaid and is in the look-back period. 4.) The person is unable to perform at least two activities of daily living.

4.) The person is unable to perform at least two activities of daily living.

When is the payment of a death benefit on a life insurance policy subject to income tax? 1.) Under no circumstances. 2.) The policy is a modified endowment contract (MEC). 3.) The policy owner had no insurable interest. 4.) The policy was transferred to a viatical company.

4.) The policy was transferred to a viatical company.