Kentucky Life Focused Review
Which is INCORRECT concerning a Section 457 Deferred Compensation plan?
It has a vesting requirement Since the employee forfeits the amount deferred if he/she leaves the employment, it has no vesting requirement.
A stock insurer is defined as an insurer
Owned by its stockholders A stock insurance company is owned by its stockholders who contribute the capital. Any profits of the company are paid to the stockholders as dividends on their stock.
FICA tax applies to which of the following?
Social Security FICA Tax = Social Security Social Security is funded by the taxes imposed on a worker's earned income. Part of the tax is applied to OASDI under FICA, and part of the tax funds Medicare.
Life Insurance can provide which of the following?
Survivor protection Life insurance provides the dollars to protect the dependents (survivors) of a deceased insured.
When giving a life insurance policy as a gift, the gift is received
Tax Free The recipient receives the gift tax-free, no matter how large the gift is.
Some persons become eligible to receive more than one Social Security benefit. They may qualify for retirement benefits based on their own earnings, and they may also be eligible for benefits based on the earnings of a spouse. In such cases, the person is entitled to receive
The larger of the two benefits, not the total of the two benefits.
What is the name of the tax that is levied by the federal government on the right to transfer property at the time of death?
Federal Estate Tax The Federal Estate Tax is a transfer tax that is levied by the federal government on the right to transfer property at the time of death.
The automatic premium loan provision is activated at the end of the
Grace period. Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.
Key person insurance can provide protection for all of the following economic losses to a business EXCEPT
Pay the death benefit to the estate of the insured. The business, not the family or estate of the insured, is the policyowner, premium payor, and the beneficiary.
Which nonforfeiture option provides coverage for the longest period of time?
Reduced paid-up. The reduced paid-up nonforfeiture option would provide PROTECTION UNTIL the INSURED REACHES 100, but the face amount is reduced to what the cash would buy.
An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?
The insured will need a written consent of the insurer. A personal insurance contract is written between an insurance company and an individual, and the company has a right to decide with whom it will and will not do business.
As it relates to life settlements, the term "owner" means
The owner of the original life policy. The term "owner" relates to the owner of the insurance policy (policyowner).
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?
Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "CORRIDOR" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes
A temporary license in this state is valid for up to
180 Days Temporary License = 180 Days
Under which of the following conditions would life insurance proceeds be taxable by the federal government?
If there is a TRANSFER FOR VALUE If LIFE INSURANCE proceeds are collected IN a LUMP-SUM payment, they are generally not subject to federal taxation. If the benefit payment results in a transfer for value (if the policy is sold to another person), it may not be exempt from taxation.
Who does the spendthrift clause in a life insurance policy protect?
The beneficiary Spendthrift = Protects Beneficiary
Which of the following would NOT fall into the category of costs associated with death?
The expense of a vacation for surviving family members These costs would take into account the final medical expenses of the insured, funeral expenses, and day to day expenses of maintaining the family including rent or mortgage payments, car payments, utilities, groceries, etc.
A graded premium life insurance policy is a modified form of
Whole Life. Graded premium is a whole life policy with premiums that increase annually over the first 5 to 10 years.
If the irrevocable beneficiary of a life insurance policy becomes legally incompetent and cannot perform any legal act, the policyowner could obtain a loan for the benefit of
That beneficiary. If the irrevocable beneficiary of a life insurance policy becomes legally incompetent and cannot perform any legal act, the policyowner could obtain a loan FOR the benefit of that beneficiary
For which of the following violations is revocation of an agent's license required by law?
a) Rebating. b) Misrepresentation. c) Using license to place business solely on an agent's own property. d) All of the above. D. Rebating and misrepresentation are unfair trade practices; using a license to write only your own insurance is called "controlled business" and is prohibited by the Code.
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?
It is reduced to the amount of what the cash value would buy as a single premium In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name.
When a whole life policy is surrendered for its nonforfeiture value, what is the automatic option?
Extended term The automatic nonforfeiture option is extended term.
An unauthorized producer operating in Kentucky pays a tax of how much of the gross premiums charged?
2 percent Every unauthorized insurer must pay a premium tax of 2 percent of gross premiums charged for insurance on subjects that live, exist or will be performed in Kentucky.
An applicant for insurance misstates her age at the time her life insurance application is taken. This misstatement may result in
Adjustment in the death benefit. In the event of the insured's death, the policy death benefit would be adjusted to equal the amount the premium paid would have purchased at the correct age, as long as the insured's correct age did not exceed the policy's maximum age.
Which of the following is TRUE regarding a policy issued to a labor union insuring members of the organization for the benefit of persons other than the union or organization?
All of the below are true: A) The members eligible for insurance under the policy must be all the members of the union or organization. b) The premiums for the policy must be paid either from funds of the union, or from funds contributed by the insured members specifically for their insurance, or from both. c) An insurer may exclude or limit the coverage on any person who provides unsatisfactory evidence of insurability to the insurer.
A policy which pays monthly income upon the death of the breadwinner for a predetermined number of years after death, plus a lump sum at death, and combines level term and whole life is known as which policy?
Family maintenance Whole life pays a lump sum, and level term pays monthly benefits for the predetermined years of the policy.
X is receiving fixed amount benefit payments from his late wife's insurance policy. He was told that if he dies before all of the benefits are paid, the remaining amount will go to the contingent beneficiary. Which settlement option did X choose?
Fixed Amount The fixed-amount option pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted. The recipient selects a specified fixed dollar amount to be paid until it is gone. If the beneficiary dies before the proceeds are exhausted, installments will continue to be paid to a contingent beneficiary until all proceeds have been paid out.
The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the
Incontestability clause If an insurer wishes to contest any statements on an application, they must do so WITHIN THE FIRST TWO YEARS.
Which of the following is NOT one of the independent rating services that publishes guides to insurance companies' financial integrity?
NAIC The various independent rating services are AM BEST, FITCH, Standard and Poor's (S&P), MOODY'S, and WEISS. NAIC is a regulatory organization composed of insurance commissioners.
Don was born in March 1973 and got his license in February 2008. When would he have to complete continuing education requirements?
By the end of March 2009 A licensee's requirements must be completed by the end of his or her birth month in the odd- or even-numbered year (depending on the year of birth) AFTER HIS or HER 1-YEAR anniversary of licensing.
An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay?
50% tax on the amount not distributed as required When immediate annuities are used to pay IRA benefits, distributions must begin NO LATER THAN AGE 70½ in order for the annuitant to avoid penalties.
If a company has a Simplified Employee Pension plan, what type of plan is it?
A qualified plan for a small business A Simplified Employee Pension (SEP) is a type of qualified plan SUITED FOR the SMALL EMPLOYER OR for SELF-EMPLOYED
Insurers must assume that invested premium money will earn a certain amount of interest. This is called the
Assumed rate of interest The "assumed rate of interest" is the interest that the insurer assumes that investment premium dollars will earn
A retirement income annuity contains an ordinary annuity, plus a
Decreasing term life insurance policy. A retirement income annuity is AN ORDINARY ANNUITY CARRYING an additional feature; A DECREASING TERM LIFE INSURANCE POLICY is added to it that provides term life insurance with a face amount that decreases each year the policy is in force.
What is surplus lines insurance?
Insurance placed with an unauthorized insurer (literal definition)
All of the following are characteristics of a group life insurance plan EXCEPT
A) There is a requirement to prove insurability on the part of the participants. b) The participants receive a Certificate of Insurance as their proof of insurance. c) A minimum number of participants is required in order to underwrite the plan. d) The cost of the plan is determined by the average age of the group. A.
When must an agent notify the Department of Insurance of a change in his/her residence address?
Within 30 Days Licensees must inform the Commissioner in writing of any change in address or legal name within 30 days of the change
What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?
$2,500 An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500.
Which is INCORRECT concerning a Section 457 Deferred Compensation plan?
It has a vesting requirement. Since the employee forfeits the amount deferred if he/she leaves the employment, it has no vesting requirement.
The provision that sets forth the basic agreement between the insurer and the insured and states the insurer's promise to pay the death benefit upon the insured's death is called the
Insuring clause The insuring clause states the insurer promise to pay the death benefit upon the insured's death and sets forth the basic agreement between the insurer and the insured.