INS 211 Test 3

Harold's home has a replacement value of $200,000. Harold insured the home for $150,000 under an unendorsed Homeowners 3 policy. The roof of Harold's home was damaged by a windstorm. The replacement cost of the damaged roof is $16,000. The actual cash value of the loss is $12,000. How much will Harold receive from his insurer to settle this claim? (assume no deductible)

$15,000

Gerald paid $45,000 for an immediate annuity. Gerald's insurer will pay him $500 per month for as long as he lives. Gerald's life expectancy is 15 years. For tax purposes, what is Gerald's exclusion ratio for this annuity?

50.0%

Employers with 100 or fewer employees and who do not maintain another qualified retirement plan are eligible to establish a type of pension that is exempt from most nondiscrimination and administrative rules. Such plans are called

SIMPLE plans.

Which of the following statements is true with respect to shopping for homeowners insurance?

Taking advantage of discounts and using a higher deductible can reduce the premium for homeowners insurance.

All of the following statements about traditional IRAs are true EXCEPT

Traditional IRA contributions are always tax deductible.

To which of the following distributions from a traditional Individual Retirement Account (IRA) before age 59 1/2 does the 10 percent penalty tax apply?

a distribution in the form of a lump-sum payment

Elaine was diagnosed with a terminal illness. Her doctor said that her only chance of survival is an experimental treatment. The treatment is expensive and is not covered by Elaine's health insurance. Which life insurance policy provision will permit Elaine to use the life insurance proceeds before she dies to pay for her medical care?

accelerated death benefits rider

During the funding period, variable annuity premiums are used to purchase

accumulation units.

Sandra's garage was destroyed by a fire. She thinks her loss is $15,000. Her insurer offered $9,000 to settle the claim. Which policy provision is designed to settle disputes between insurers and insureds over the value of a loss?

appraisal clause

All of the following are excluded from coverage under Section II of the Homeowners 3 policy EXCEPT

bodily injury liability

Which of the following statements is (are) true regarding annuities? I. Insurers pool the risk of excessive longevity when offering annuities. II. An annuity can provide a lifetime income that cannot be outlived.

both I and II

Which of the following statements is (are) true with regard to Keogh Plans? I. Sole proprietorships and partnerships can establish qualified Keogh Plans that enjoy the same tax advantages of qualified corporate plans. II. A Keogh Plan can be set-up as a defined-contribution plan or as a defined-benefit plan.

both I and II

Which of the following statements is (are) true with regard to defined benefit and defined contribution retirement plans? I. Prior to retirement, employees have a better idea of what their retirement benefit will be under defined benefit plans than under defined contribution plans. II. Defined benefit plans are more complicated and expensive to administer and fund than are defined contribution plans.

both I and II

Which of the following statements is (are) true with respect to life insurance policy loans? I. Interest must be paid on life insurance policy loans. II. If a policy loan has not been repaid when the insured dies, the outstanding loan balance is deducted from the proceeds paid to the beneficiary.

both I and II

Which of the following statements is (are) true with respect to perils covered under an unendorsed ISO Homeowners 3 policy? I. The dwelling and other structures are covered for all direct physical losses except those losses that are specifically excluded. II. Personal property is covered on a named-perils basis.

both I and II

Which of the following statements is (are) true with respect to the Personal Liability and Medical Payments to Others coverages under the Homeowners 3 policy? I. Personal Liability Coverage applies if the named insured caused bodily injury or property damage as a result of his or her negligence. II. It is not necessary to prove that the named insured was negligent for Medical Payments to Others benefits to be paid.

both I and II

Many employers have converted their traditional defined-benefit plans to a newer type of plan. Under this type of plan, benefits are defined in terms of a hypothetical account balance, with actual retirement benefits dependent on the value of a participant's account value at retirement. This type of plan is called a(n)

cash-balance plan

One life insurance policy provision permits the policyholder to pledge certain rights in the life insurance policy to secure a loan. This provision is called a(n)

collateral assignment.

Some term insurance policies permit the policyholder to exchange the policy for a cash value policy without having to demonstrate insurability. Such term insurance policies are described as

convertible.

One type of life insurance is a nonparticipating whole life policy in which cash values are based on the insurer's present mortality, investment, and expense experience. An accumulation account is used to reflect the cash value of the policy, and a fixed death benefit and maximum premium level are stated at the time the policy is issued. This type of life insurance is called

current assumption whole life.

All of the following losses to the dwelling are covered under an unendorsed ISO Homeowners 3 policy EXCEPT

damage caused by an earthquake

All of the following are additional coverages under Section II of the homeowners policy EXCEPT

damage to the homeowner's personal property

All of the following statements are true with regard to defined benefit plans and defined contribution plans EXCEPT

employees are given a choice of where to invest funds under a defined benefit

Some insurers offer a fixed, deferred annuity that allows the annuity owner to participate in the growth of the stock market and also provides downside protection against the loss of principal and prior interest earnings if the annuity is held to term. Such an annuity is called a(n)

equity-indexed annuity

All of the following are characteristics of variable life insurance EXCEPT

flexible premium payments.

Eric purchased a cash value life insurance policy six years ago. He forgot to pay the premium that was due last week. Eric's coverage is still in force because of which life insurance policy provision?

grace period provision

One funding instrument that is used to accumulate funds for pension plans is an arrangement in which an insurer promises to pay a relatively high rate of interest for a number of years on a lump sum deposit. This funding instrument is called a(n)

guaranteed investment contract

One life insurance policy provision specifies that the insurer cannot deny payment to the beneficiary because of concealment or misrepresentation if the life insurance policy has been in force for two years during the insured's lifetime. This provision is the

incontestable clause

All of the following statements about the cost of homeowners insurance are true EXCEPT

insurers cannot consider location of the home as a rating factor

All of the following are nonforfeiture options EXCEPT

paid-up addition

Bob and Tonya are supporting their children, ages 4 and 2. Bob's father is also financially dependent upon Bob and Tonya. This type of family is called a(n)

sandwiched family

From an economic perspective, "premature death" is defined as death of a family head

with outstanding financial obligations.

Which of the ISO homeowners insurance forms is designed specifically for renters?

Homeowners 4

Which of the following statements is (are) true regarding life insurance policyholder dividends? I. Life insurance policies that pay dividends to policyholders are called participating policies. II. Life insurance policyholder dividends are guaranteed.

I only

Which of the following statements is (are) true with respect to Section II of the homeowners policy? I. The personal liability limit applies on a per-occurrence basis. II. The medical payments coverage applies to the named insured and members of the named insured's household.

I only

Which of the following statements is (are) true with respect to profit sharing plans? I. Contributions to profit sharing plans can be discretionary or based on profitability. II. Employers can make unlimited annual contributions to profit sharing plans.

I only

Which of the following statements is (are) true with respect to universal life insurance? I. Universal life insurance provides premium payment flexibility for the policyholder. II. Universal life insurance permits the policyholder to select where the cash value is invested.

I only

Which of the following statements is (are) true with respect to the Roth IRA? I. Roth IRA contributions are tax deductible. II. Roth IRA contributions accumulate income tax free and qualified distributions are not taxable if certain requirements are met.

II only

Bob and Jasmine Davis are a married couple who are both 67 years old. Bob and Jasmine purchased an annuity covering both of their lives. The settlement option will provide payments until Bob and Jasmine are both deceased. The settlement option Bob and Jasmine selected is a(n)

joint-and-survivor annuity option.

Which homeowners insurance contractual provision states that if the insurer broadens the coverage it offers without charging a higher premium, the broadened coverage applies to the coverage already in force?

liberalization clause

Annette purchased a life annuity at age 65 and started to receive monthly payments from the insurer. Annette's monthly payments consist of all of the following EXECPT

life insurance proceeds from annuitants who live too long.

Lynn, age 32, would like to purchase permanent life insurance. She is concerned that premiums may become a burden after she retires. Given her coverage preferences, which of the following life insurance policies is the best policy for Lynn to purchase?

limited-payment whole life insurance

A financial institution has an insurable interest in a home if the financial institution loaned money for the purchase of the home and the home is collateral for the loan. Which homeowners insurance policy provision is designed to protect the insurable interest of the financial institution?

mortgage clause

Which of the following statements is (are) true with regard to the recovery basis under an unendorsed ISO Homeowners 3 policy? I. Losses to the dwelling and other structures are settled on an actual cash value basis. II. Personal property losses are settled on the basis of replacement cost.

neither I nor II

Which of the following statements is (are) true with respect to the human life value approach? I. The human life value approach considers all sources of income that the family receives. II. The human life value approach does not consider the time value of money--future cash flows are not discounted back to present value.

neither I nor II

In addition to covering personal liability arising from sudden events, personal liability coverage provided by the homeowners policy also covers liability arising out of a gradual series of events that happen over time. This coverage basis is called

per-occurrence coverage

Section II of the Homeowners 3 policy covers

personal liability and medical payments to others

All of the following losses are covered under Section I of the ISO Homeowners 3 policy EXCEPT

personal liability of the homeowner.

Bernice, a homeowner, is concerned that if she libels or slanders someone, she could be held liable. How can Bernice protect herself against this legal liability?

purchase a Homeowners 3 policy and add a personal injury endorsement

Under the needs approach of determining the amount of life insurance to purchase, one consideration is providing income to the surviving spouse and children during the one- or two-year period following the breadwinner's death. This period is called the

readjustment period.

All of the following are optional methods of settlement after the insured has died EXCEPT

reduced paid-up insurance

Under which nonforfeiture option will permanent life insurance coverage be in force after the nonforfeiture option is exercised?

reduced paid-up insurance

Charles has a coin collection, a stamp collection, and several valuable art prints. What endorsement can Charles add to his homeowners policy to provide broader coverage for this property?

scheduled personal property endorsement

Variable annuity owners pay a number of fees and expenses. One expense that is levied is forfeiture of a percentage of the account balance if the annuity is terminated in the early years. This fee is typically seven percent of the account balance in the first year, declining one percent per year for the next six years. This fee is called the

surrender charge

All of the following life insurance policies develop a cash value EXCEPT

term life insurance

All of the following are covered under "Coverage D: Loss of Use" of the Homeowners 3 policy EXCEPT

the cost to repair or replace property destroyed by a covered peril.

All of the following are characteristics of profit sharing plans EXCEPT

there are no annual limits on the amount contributed to an employee's account.

A pension plan in which more than 60 percent of the plan assets are in accounts attributed to key employees is called a(n)

top-heavy plan

Jack is afraid that if he quits his job, he will lose the pension contributions that his employer has been setting aside for him for the past 12 years. An employee's right to pension contributions if employment terminates prior to retirement is known as

vesting.

Sheila would like to purchase a cash value life insurance policy. She is concerned, however, that if she becomes disabled she will be unable to pay the premiums as they come due. What provision can Sheila add to her policy to address this concern?

waiver-of-premium rider