Life and Health: Chapter 4 Missed Questions

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

A. Modified endowment contract Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract.

An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy? A. She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan. B. She will still be covered under the group plan, but will have to pay an individual policy premium. C. She can only convert her coverage without proof of insurability if she has the master policy. D. She must apply for a new policy, which requires her to provide proof of insurability.

A. She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan If a person has life insurance under a group plan and then leaves the group, he/she may convert group coverage to individual coverage within 31 days of leaving the plan without proof of insurability.

Who can make a fully deductible contribution to a traditional IRA? A. A person whose contributions are funded by a return on investment B. An individual not covered by an employer-sponsored plan who has earned income C. Anybody; all IRA contributions are fully deductible regardless of income level D. Someone making contributions to an educational IRA

B. An individual not covered by an employer-sponsored plan who has earned income Individuals who are not covered by an employer-sponsored plan may deduct the amount of their IRA contributions regardless of their income level.

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. Buy-sell agreement Buy-Sell agreements are used to contractually establish the intent of someone else to purchase the business upon the insured's death, and to set a value (purchase price) on a business. Life insurance is used to fund the buy-sell agreement. Any type of life insurance may be purchased to provide the necessary funds for the agreement. Insurance can be used to either fully or partially fund the buy-sell agreement.

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

B. Cross-purchase plan In a Cross-Purchase Plan each partner involved purchases insurance on the life of each of the other partners. With a cross-purchase plan, each partner is the owner, premium-payor, and beneficiary of the life insurance on the lives of the other partners. The amount of the life insurance is equal to each partner's share of the purchase price of the deceased partner's interest in the business.

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. Funding against company's general financial loss. Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees.

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

C. The owner Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners.

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

D. Executive bonus 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 an executive bonus.