Retirement and Other Insurance Concepts - Quiz
Chapter: Retirement and Other Insurance Concepts Question 12 of 15 All of the following are personal uses of life insurance EXCEPT ABuy-sell agreement. BSurvivor protection. CEstate creation. DCash accumulation.
A. Buy-sell agreement. Correct! Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. A buy-sell agreement is for business uses of life insurance.
Chapter: Retirement and Other Insurance Concepts Question 10 of 15 Who is a third-party owner? AAn insurer who issues a policy for two people BAn employee in a group policy CAn irrevocable beneficiary DA policyowner who is not the insured Incorrect! Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.
D. A policyowner who is not the insured Correct! Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.
Chapter: Retirement and Other Insurance Concepts Question 13 of 15 A key person insurance policy can pay for which of the following? ACosts of training a replacement BLoss of personal income CWorkers compensation DHospital bills of the key employee
A. Costs of training a replacement. Correct! A key person insurance policy will pay for costs of running the business and replacing the employee.
Chapter: Retirement and Other Insurance Concepts Question 2 of 15 Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? APremiums are not tax deductible as a business expense. BPremiums are tax deductible by the key employee. CPremiums are tax deductible as a business expense. DPremiums are taxable to the employee.
A. Premiums are not tax deductible as a business expense. Correct! The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.
Chapter: Retirement and Other Insurance Concepts Question 3 of 15 If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a A. Settlement option. BNontaxable exchange. CNonforfeiture option. DRollover.
A. Settlement option. Correct! A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.
Chapter: Retirement and Other Insurance Concepts Question 15 of 15 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 ASurvivor protection. BLife planning. CSurvivorship insurance. DJuvenile protection provision. .
A. Survivor protection. Correct! Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection
Chapter: Retirement and Other Insurance Concepts Question 14 of 15 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? A100% participation of members is required in noncontributory plans. BEach member covered receives a policy. CCoverage cannot be converted when an individual leaves the group. DPremiums are determined by age, occupation, and individual underwriting.
A100% participation of members is required in noncontributory plans. Correct! If the employer pays all of the premium, then all employees must be included.
Chapter: Retirement and Other Insurance Concepts Question 1 of 15 All of the following are examples of third-party ownership of a life insurance policy EXCEPT AWhen an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company. BAn insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. CAn insured couple purchases a life insurance policy insuring the life of their grandson. DA company purchases a life insurance policy on their manager, who is an important part of the operation.
B. An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. Correct! A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.
Chapter: Retirement and Other Insurance Concepts Question 13 of 15 All of the following are examples of third-party ownership of a life insurance policy EXCEPT AWhen an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company. BAn insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. CAn insured couple purchases a life insurance policy insuring the life of their grandson. DA company purchases a life insurance policy on their manager, who is an important part of the operation.
B. An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. Correct! A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.
Chapter: Retirement and Other Insurance Concepts Question 11 of 15 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 AStock redemption plan. BBuy-sell agreement. CKey person policy. DSplit-dollar plan.
B. Buy-sell agreement. Correct! 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.
Chapter: Retirement and Other Insurance Concepts Question 5 of 15 What does "liquidity" refer to in a life insurance policy? AThe insured receives payments each month in retirement. BCash values can be borrowed at any time. CThe death benefit replaces the assets that would have accumulated if the insured had not died. DThe policyowner receives dividend checks each year.
B. Cash values can be borrowed at any time. Correct! Liquidity in life insurance refers to availability of cash to the insured through cash values.
Chapter: Retirement and Other Insurance Concepts Question 8 of 15 All of the following are business uses of life insurance EXCEPT AFunding business continuation agreements. CCompensating executives. DFunding against financial loss caused by the death of a key employee.
B. Funding against company's general financial loss. Correct! 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.
Languages: English Español Chapter: Retirement and Other Insurance Concepts Question 11 of 15 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? AMorbidity BLife expectancy CMortality rate DRisk exposure Correct! Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).
B. Life expectancy Correct! Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).
Chapter: Retirement and Other Insurance Concepts Question 6 of 15 All of the following are characteristics of group life insurance EXCEPT ACertificate holders may convert coverage to an individual policy without evidence of insurability. BPremiums are determined by the age, sex and occupation of each individual certificate holder. CAmount of coverage is determined according to nondiscriminatory rules. DIndividuals covered under the policy receive a certificate of insurance.
B. Premiums are determined by the age, sex and occupation of each individual certificate holder. Correct! Premiums are determined by the age, sex and occupation of the entire group.
Chapter: Retirement and Other Insurance Concepts Question 10 of 15 The premiums paid by the employer in a business life insurance policy are ANever taxable to the employee. BTax deductible by the employer. CTax deductible by the employee. DAlways taxable to the employee.
B. Tax deductible by the employer. Correct! The premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee's benefit, are tax deductible to the employer as a business expense.
Chapter: Retirement and Other Insurance Concepts Question 3 of 15 Which of the following is an example of liquidity in a life insurance contract? AThe money in a savings account BThe cash value available to the policyowner CThe death benefit paid to the beneficiary DThe flexible premium
B. The cash value available to the policyowner Correct! Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.
Chapter: Retirement and Other Insurance Concepts Question 9 of 15 All of the following are true of key person insurance EXCEPT AThe key employee is the insured. B. The plan is funded by permanent insurance only. CThere is no limitation on the number of key employee plans in force at any one time. DThe employer is the owner, payor and beneficiary of the policy.
B. The plan is funded by permanent insurance only. Correct! Key Person coverage may be funded by any type of life insurance.
Chapter: Retirement and Other Insurance Concepts Question 4 of 15 Which of the following is the best reason to purchase life insurance rather than an annuity? ATo liquidate a sum of money over a lifetime BTo create an estate CTo liquidate a sum of money over a period of years DTo create regular income payments
B. To create an estate Correct! With insurance, the death benefit creates an immediate estate should the insured die.
Chapter: Retirement and Other Insurance Concepts Question 5 of 15 Who can make a fully deductible contribution to a traditional IRA? AA person whose contributions are funded by a return on investment BAn individual not covered by an employer-sponsored plan who has earned income CAnybody; all IRA contributions are fully deductible regardless of income level DSomeone making contributions to an educational IRA
B.An individual not covered by an employer-sponsored plan who has earned income. Correct! Individuals who are not covered by an employer-sponsored plan may deduct the amount of their IRA contributions regardless of their income level.
Chapter: Retirement and Other Insurance Concepts Question 12 of 15 An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer? A$8,000, tax on growth only B$10,000, tax on growth only C$10,000, no tax consequence D$8,000, no tax consequence
C. $10,000, no tax consequence. Correct! During an IRA direct transfer (or direct rollover), the full amount gets reinvested from one plan to the other.
Chapter: Retirement and Other Insurance Concepts Question 2 of 15 In a life settlement contract, whom does the life settlement broker represent? AThe beneficiary BThe life settlement intermediary CThe owner DThe insurer
C. The owner. Correct! 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.
Chapter: Retirement and Other Insurance Concepts Question 14 of 15 Which of the following is NOT true of life settlements? AThey could be sold for an amount greater than the current cash value. BThey involve insurance policies with large face amounts. CThe seller must be terminally ill. DThey could be used for a key person coverage.
C. The seller must be terminally ill. Correct! With Life Settlements, unlike with viatical settlements, the seller does not need to be terminally ill. They usually involve life insurance policies with a face amount of $250,000 or more, "key-person" coverage, corporate owned policies, or policies representing excess coverage that is no longer needed, and could be sold for an amount greater than the current cash value.
Chapter: Retirement and Other Insurance Concepts Question 7 of 15 What is the purpose of key person insurance? ATo insure retirement benefits are available to all key employees BTo maintain an account that insures the owner of a company remains solvent CTo lessen the risk of financial loss because of the death of a key employee DTo provide health insurance to the families of key employees
C. To lessen the risk of financial loss because of the death of a key employee. Correct! A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills or business contacts. A business can lessen the risk of such loss by the use of key person insurance.
Chapter: Retirement and Other Insurance Concepts Question 15 of 15 An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable? A$50,000 B$18,000 C$15,000 D$3,000
D$3,000 Correct! The difference between the premiums paid and the cash value would be taxable. In this example, the difference between the premiums paid ($15,000) and the cash value ($18,000) is $3,000.
Chapter: Retirement and Other Insurance Concepts Question 4 of 15 What percentage of a company's employees must take part in a noncontributory group life plan? A0% B25% C75% D100%
D. 100% Correct! If the employer pays all of the premium, all employees must be covered to avoid adverse selection.
Chapter: Retirement and Other Insurance Concepts Question 8 of 15 Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? APremiums are tax deductible by the key employee. BPremiums are tax deductible as a business expense. CPremiums are taxable to the employee. DPremiums are not tax deductible as a business expense.
D. Premiums are not tax deductible as a business expense. Correct! The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.
Chapter: Retirement and Other Insurance Concepts Question 9 of 15 All of the following are true of key person insurance EXCEPT AThere is no limitation on the number of key employee plans in force at any one time. BThe employer is the owner, payor and beneficiary of the policy. CThe key employee is the insured. DThe plan is funded by permanent insurance only.
D. The plan is funded by permanent insurance only. Correct! Key Person coverage may be funded by any type of life insurance.
Chapter: Retirement and Other Insurance Concepts Question 7 of 15 Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE? ADistributions before age 59 1/2 incur a 10% penalty on policy gains. BPolicy loans are taxable distributions. CAccumulations are tax deferred. DWithdrawals are not taxable.
D. Withdrawals are not taxable. Correct!! Any distributions from MECs are taxable, including withdrawals and policy loans. All of the other statements are true.
Chapter: Retirement and Other Insurance Concepts Question 6 of 15 Which of the following is NOT an example of a business use of Life Insurance? ABuy-sell Funding BExecutive Bonuses CKey Person DWorkers Compensation
D. Workers Compensation Correct! Workers Compensation is a benefit payable when a worker is injured by a work-related injury, regardless of fault or negligence. It is not considered a business use of insurance.
