Flashcards About Life Insurance
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How does a continuous premium whole life policy differ from a limited pay whole life policy? A. The time period in which premiums will be paid B. The availability of cash value loans C. The availability of nonforfeiture options D. The settlement options
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A. The time period in which premiums will be paid
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What type of premiums are associated with individual mortgage protection life insurance policies? A. Level premiums B. Flexible premiums C. Modified premiums D. Decreasing premiums
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A. Level premiums
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Taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for A. A cash value loan is taken out B. Automatic premium loan provision is utilized C. The policy is surrendered for less than what was paid into it D. Dividend is issued
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C. The policy is surrendered for less than what was paid into it
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What kind of life insurance policy allows a policyowner the choice of investments along with flexible premium payments? A. Variable universal life B. Modified endowment contract C. Adjustable life D. Graded premium whole life
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A. Variable universal life
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All of these statements concerning universal life insurance are false EXCEPT A. Death benefits are normally taxable B. Policy loans are not permitted C. Premiums or face amount cannot be changed D. Policy indicates how much of the premium is used toward company expenses
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D. Policy indicates how much of the premium is used toward company expenses
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How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies? A. Survivorship life policy is lower B. Survivorship life policy is higher C. Depends on the investment performance of the underlying accounts D. Both have the same actuarial costs
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A. Survivorship life policy is lower
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Which statement regarding universal life insurance is correct? A. Cash value accumulations have a guaranteed minimum interest rate B. Policyowner can change the face amount but not the premium C. Policyowner can change the premium but not the face amount D. Partial withdrawals cannot be made from the policy's cash value
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A. Cash value accumulations have a guaranteed minimum interest rate
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Which statement regarding whole life insurance is accurate? A. Cash value loans are not permitted B. Insurance coverage can continue for life C. Policy normally matures at retirement D. No cash value accumulations
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B. Insurance coverage can continue for life
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All of these are considered features of whole life insurance EXCEPT A. Cash value accumulation B. Permanent coverage C. Initial premium is lower than for an equivalent amount of term insurance D. Policy loans are allowed
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C. Initial premium is lower than for an equivalent amount of term insurance
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Which of these policies is considered a whole life policy? A. Credit life B. Single premium life C. Renewable life D. Convertible life
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B. Single premium life
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What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured? A. Joint and survivorship B. Survivorship life C. Universal life D. Joint life
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D. Joint life
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Rick owns a variable universal life policy and chooses a variable death benefit option. What will typically happen to the death benefit as a result of this selection? A. Remain the same B. Decrease but never increase C. Increase but never decrease D. Fluctuate with changes in the cash account
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D. Fluctuate with changes in the cash account
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An individual who purchases a modified life insurance policy expects A. a higher rate of return B. coverage for two people C. an improvement in future income D. a flexible face amount
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C. an improvement in future income
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Assets that back the non-guaranteed values of variable life insurance products are held in which account? A. Trust account set up by the insured B. Separate account set up by the insurer C. General account of the insurer D. Money market account
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B. Separate account set up by the insurer
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When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for A. Ten year term insurance for a person aged 55 B. Ten year term insurance for a person aged 45 C. Yearly renewable term insurance for a person aged 55 D. Yearly renewable term insurance for a person aged 45
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A. Ten year term insurance for a person aged 55
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What kind of life policy typically offers mortgage protection? A. Whole life B. Decreasing term C. Increasing term D. Level term
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B. Decreasing term
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Which of these life insurance policies do NOT contain cash value provisions? A. Modified whole life B. Universal life C. Decreasing term life D. Adjustable life
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C. Decreasing term life
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What type of policy can group term life insurance normally be converted to? An individual renewable policy An individual level term policy An individual permanent life insurance policy A group permanent life insurance policy
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An individual permanent life insurance policy
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What is the term used for an insurance contract that identifies individuals by relationship to a specific organization? Employer insurance Group insurance COBRA plan Industrial insurance
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Group insurance
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What minimum percentage of all eligible employees must participate in a group life insurance plan if the premiums are completely paid for by the employer? 0% 50% 75% 100%
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100%
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Which statement about group life insurance is INCORRECT? Cost can be shared between employer and employee Each participant requires evidence of insurability A minimum number of employees participating may be required Employer is issued a master policy
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Each participant requires evidence of insurability
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Which statement regarding the certificate of insurance is accurate? It is an insurance contract between the employer and insurer Indicates evidence of an employee's insurance coverage Each certificate of insurance is underwritten on an individual basis It is issued by the employer to the employee
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Indicates evidence of an employee's insurance coverage
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What is the reason that insurance companies require a minimum number of employees participating in a group insurance plan? Efficiency is maximized Adverse selection is minimized Profits are maximized Claims are minimized
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Adverse selection is minimized
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The policy provision that permits an employee to change from a group plan to an individual plan is called the assignment provision conversion provision certificate provision modification provision
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conversion provision
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An employer has a group life insurance plan in place for his employees. How would an employee in poor health be treated in this situation? Approved on a graded basis Not eligible for insurance on this plan Eligible for the same type of coverage as the other employees Must pay a rating based on risk
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Eligible for the same type of coverage as the other employees
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Any employee insured under a group life insurance plan is normally given a master certificate covered on a noncontributory basis required to show proof of insurability protected by term life insurance
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protected by term life insurance
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The conversion option for group term insurance may be exercised by an employee at any time while still employed within 2 years of the hire date within 31 days of terminated employment after providing proof of insurability
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within 31 days of terminated employment
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If an employer pays for accidental death and dismemberment insurance for its employees, the amount paid by the employer is generally tax deductible to the business non-deductible to the business partially deductible to the business considered taxable income to each employee
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tax deductible to the business
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Which of these occurrences could improve an insurer's ability to reduce premiums? Expense factor increase Mortality rates increase Rate of earnings on investments increase Requiring monthly premium payments instead of annual
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Rate of earnings on investments increase
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Which life insurance settlement option pays lifetime benefits to two or more people? Life income with period certain Joint Joint and survivor Life income
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Joint and survivor
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Which life insurance settlement option pays a stated monthly payment until both principal and interest are exhausted? Fixed amount installment option Fixed period installment option Life income option Interest only option
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Fixed amount installment option
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Life insurance premiums are based on what three factors? Mortality, interest, dividends Morbidity, interest, expenses Mortality, interest, expenses Morbidity, interest, dividends
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Mortality, interest, expenses
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Which statement most accurately describes a single premium whole life policy? Premiums that can only be paid from a single source A single premium that is due annually Paid-up policy that offers lifetime protection Paid-up policy that offers limited protection
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Paid-up policy that offers lifetime protection
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During the early years of a whole life insurance policy, the cash value will normally be equal to the total premiums paid more than the total premiums paid less than the total premiums paid unavailable as a policy loan
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less than the total premiums paid
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The highest mortality rate belongs to which group? Age 60 females Age 70 males Age 60 males Age 70 females
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Age 70 males
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The beneficiary of a life insurance policy is normally selected by whom? Policyowner Contingent beneficiary Estate Insurance company
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Policyowner
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Which tax is normally associated with an individual's death? Excise tax Consumption tax Federal estate tax Ad valorem tax
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Federal estate tax
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What kind of arrangement gives the policyowner the right to change the beneficiary? Contestable designation Incontestable designation Irrevocable designation Revocable designation
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Revocable designation
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When an applicant applies for a large amount of life insurance coverage, which of the following would likely NOT be an underwriting requirement? Consumer report Eye examination Urine sample Blood sample
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Eye examination
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What must be given to a life insurance applicant when the agent receives an application and the initial premium? Agent's report Conditional receipt Commission disclosure Good health statement
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Conditional receipt
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Which of these is NOT considered the responsibility of a producer in the underwriting process? Collecting additional medical information if needed Promptly sending the completed application to the insurance company Forwarding any material personal observations to the insurer Selecting the final approval date
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Selecting the final approval date
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When a producer submits an application that discloses personal information regarding the applicant, who supplies the privacy notice? Producer Insurer Underwriter Fiduciary
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Producer
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The reason for backdating a policy is to avoid being considered a substandard risk due to a recent cancer diagnosis to obtain a premium rate based on an earlier age to decrease the face amount to decrease the Contestable period
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to obtain a premium rate based on an earlier age
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The Medical Information Bureau consists of members from which group? Doctors Hospitals Insurance companies Underwriters
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Insurance companies
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All of these are duties that a producer may be required to perform when delivering an insurance policy EXCEPT Acquire a statement of good health signature Gather the initial premium Review policy with applicant Leave a conditional receipt with client
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Leave a conditional receipt with client
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A policyowner pays the first annual premium for a $50,000 life insurance policy and dies one month after the policy effective date. Which of these statements is normally true? Premium will be refunded with interest and no death benefit paid Premium received by insurer is considered to be unearned Proceeds are prorated to 1/12th of the full amount Beneficiary receives $50,000 income tax-free
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Beneficiary receives $50,000 income tax-free
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Where is the difference between a standard risk and a substandard risk reflected? backdating coverage is not offered premium charges back-end charges
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premium charges
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The premiums paid by an employer for his employee's group life insurance are usually considered to be tax-deductible to the employer partially deductible to the employee tax-deductible to the employee taxable income to the employee
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tax-deductible to the employer
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Which of these is NOT considered to be a cost connected with an individual's death? Funeral expense Tax liability Business expenses Probate costs
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Business expenses
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Which of the following is NOT a reason for a business to buy key person life insurance? The reduction in sales as a direct result from death of the key employee A void in leadership if the key person were to die The loss of company revenues while a replacement is being sought An increased pension liability if the key employee dies
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An increased pension liability if the key employee dies
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Which of these factors does NOT influence an applicant's need for life insurance? Lifestyle of the applicant Number of dependents Future educational costs of the dependents Self-maintenance expenses
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Self-maintenance expenses
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With life insurance, the needs approach is used primarily in determining which insurance company to purchase the coverage from how much life insurance a client should apply for the type of life insurance that should be purchased a budget for the surviving dependents to follow in the event of the client's death
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how much life insurance a client should apply for
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When using the needs approach for life insurance planning, lump sums may be created for all of the following reasons EXCEPT Final expenses Charitable donation Education Employee benefits
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Employee benefits
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Which of the following is NOT considered to be an expense for surviving family members of a deceased wage earner? Estate taxes Unemployment tax expenses Funeral expense Living expenses
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Unemployment tax expenses
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Which of the following disability buy-sell agreements is best suited for businesses with a small number of partners? Split dollar plan Entity agreement Cross-purchase agreement Key person plan
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Cross-purchase agreement
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XYZ Corp gives money to an employee to purchase a life insurance policy and allows the employee to select the beneficiary. What kind of plan is this? Split-dollar Cross puchase Key employee Deferred compensation
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Split-dollar
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Which of these is NOT relevant when determining the amount of personal life insurance needed? Existing life insurance coverage Local unemployment rates Household income Household debt
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Local unemployment rates
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What is considered a valid reason for small businesses to insure the lives of its major shareholders? To provide an income for the surviving dependents Reduce the company's tax liability To pay for final expenses Fund a buy-sell agreement
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Fund a buy-sell agreement
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Which of these pays an income to two or more annuitants until the death of the last annuitant? Joint life annuity Deferred survivor annuity Joint and survivor annuity Survivorship annuity
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Joint and survivor annuity
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The contract owner in a single premium deferred annuity (SPDA) receives immediate benefit payments makes only one premium payment can make tax-free withdrawals until the principal is recovered is also the beneficiary
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makes only one premium payment
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The interest credited to the cash values of personally-owned non-qualified annuities is considered a tax credit tax-deferred tax-deductible tax-exempt
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tax-deferred
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When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest minus bailout option charge surrender charges taxes owed expenses and withdrawals
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expenses and withdrawals
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A retired couple would like to maximize the income derived from their life savings and have it payable until they both die. Which annuity would be their best choice? Fixed annuity Survivorship annuity Joint life annuity Joint and survivor annuity
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Joint and survivor annuity
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Under which circumstance is the interest rate guaranteed within a market value adjusted annuity? When the contract has been held for a stated time period For the entire length of the contract Never When the cash value has reached a stated minimum amount
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When the contract has been held for a stated time period
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Which of the following is NOT a valid contract exchange? An annuity exchanged for a life insurance policy An annuity exchanged for another annuity A life insurance policy exchanged for another life insurance policy A life insurance policy exchanged for an annuity
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An annuity exchanged for a life insurance policy
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When a sum of money undergoes capital liquidation, that sum will increase in value remain the same indefinitely decrease in size create tax deductions
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decrease in size
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A business may purchase an annuity for all of the following reasons EXCEPT Structuring a liability settlement payment Funding a non-qualified deferred compensation plan Accumulating assets on a tax-deferred basis Providing a pension to employees
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Funding a non-qualified deferred compensation plan
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An individual, age 45, would like to help pay for his daughter's college expenses in 10 years. Which annuity would be appropriate for this individual? Joint and survivor annuity Deferred annuity 403(b) plan Immediate annuity
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Deferred annuity
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When does interest income for a flexible premium deferred annuity get reported for federal income taxes? Never After the principal has been exhausted When the distributions are received from the contract During the accumulation phase
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When the distributions are received from the contract
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When a deferred annuity is surrendered, who must sign the authorization to do so? Owner Annuitant and beneficiary Annuitant All parties involved
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Owner
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How do benefit payments fluctuate over time in a variable life annuity? Benefit payments stay fixed Reflects changes in the market value of assets in a separate account Annuitant controls any benefit payment changes Any benefit payment fluctuations have to be approved in writing by the owner
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Reflects changes in the market value of assets in a separate account
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The back-end charge typically associated with an annuity that has been cancelled during the early contract years is called a back-end assessment cancellation fee surrender charge tax penalty
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surrender charge
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Which of the following normally pertains to an immediate annuity? Tax-free benefit payments Installment premium payments Lack of an accumulation period Lump-sum benefit
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Lack of an accumulation period
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The contractual rights that allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are called nonforfeiture options settlement options conversion options surrender options
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nonforfeiture options
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The surrender charge on many deferred annuity contracts are waived when the annuitant becomes unemployed annuitant dies or becomes disabled contract's interest rate falls below a stated percentage contract is canceled within the first year
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annuitant dies or becomes disabled
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Which of the following is NOT an intended use of an annuity? Obtain income benefits for a stated period of time for more than one person Accumulate assets on a tax-deferred basis Create immediate lifetime income benefits Create new funds upon the death of a wage-earner
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Create new funds upon the death of a wage-earner
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A business may purchase an annuity for all of the following reasons EXCEPT Structuring a liability settlement payment Funding a non-qualified deferred compensation plan Accumulating assets on a tax-deferred basis Providing a pension to employees
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Funding a non-qualified deferred compensation plan
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A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct? If the interest rate falls below a specified level, the surrender charge is waived If the interest rate rises above a certain level, the surrender charge is waived It allows the Life and Health Guaranty Association to bailout the insolvent insurer A reinsurer will make the remainder of the annuity payments if the original insurance company becomes insolvent
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If the interest rate falls below a specified level, the surrender charge is waived
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A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called fixed period period certain installment refund straight life
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period certain
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What determines how much an annuitant is paid for a variable annuity? Varies according to how many outstanding annuity units Payments fluctuate as annuitant gets older The market value fluctuations of the securities backing it Varies according to the insurer's investments in its general account
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The market value fluctuations of the securities backing it
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A large corporation purchases an accumulation annuity contract where all of the participating employees receive certificates of participation. What is this contract called? 403(b) plan Group deferred annuity Group immediate annuity Joint and survivor group plan
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Group deferred annuity
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When a large sum of money is used to structure monthly payments, which product is typically used? A 401(k) plan A 403(b) plan A deferred annuity An immediate annuity
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An immediate annuity
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Which of the following would NOT be appropriate for an immediate annuity? A lottery winner who opted for a lump-sum payment Setting up a college savings fund for a young child A beneficiary collecting the face amount of a life insurance policy Someone who just won a large settlement
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Setting up a college savings fund for a young child
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Setting up a college savings fund for a young child continue after the purchase payments stop continue after the benefit payments start continue after the annuitant dies continue after the annuity has been surrendered
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continue after the purchase payments stop
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When an annuity contract has been surrendered, how will the surrender charges affect the final contract settlement? Settlement will be reduced Settlement will be increased Settlement will not be affected Settlement will be held in escrow until surrender charges are paid
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Settlement will be reduced
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Which benefit can be found in an equity indexed annuity, but not in a fixed annuity? Protection against living too long Equity loans A fixed rate of return Protection against long-term inflation
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Protection against long-term inflation
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Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will discontinue after a stated number of years remain a constant dollar amount for the duration of the annuity period pay a lump sum if the annuitant dies vary according to the underlying investment performance
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remain a constant dollar amount for the duration of the annuity period
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Sarah, age 88, is a life annuitant who has lived beyond her life expectancy. The funds for additional benefit payments will be derived primarily from funds that were obtained from the state's Guaranty Association accumulated from the invested principal given up by the annuitant's refund beneficiary not distributed to life annuitants who died before life expectancy
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not distributed to life annuitants who died before life expectancy
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Which of the following contracts offer deferred taxation, flexible payments, a guaranteed interest rate, and death benefits equal to the cash value? Variable life policy Modified life policy Flexible premium fixed annuity Immediate fixed annuity
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Flexible premium fixed annuity
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An owner's cost basis for a non-qualified deferred annuity is typically the same as the annuity's cash value premiums paid into the annuity benefits payable to the annuitant interest earned within the annuity
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premiums paid into the annuity
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In a qualified retirement plan, the yearly contributions to an employee's account are not tax-deductible are restricted to minimum levels set by the IRS are restricted to maximum limits set by the IRS must be matched dollar-for-dollar by the employer
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are restricted to maximum limits set by the IRS
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Premature IRA distributions are subject to a penalty tax of 0% 10% 15% 20%
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10%
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Which of the following is TRUE about a qualified retirement plan that is "top heavy"? More than 30% of plan assets are in key employee accounts More than 40% of annual additions are for key employee accounts More than 50% of plan assets are in key employee accounts More than 60% of plan assets are in key employee accounts
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More than 60% of plan assets are in key employee accounts
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How are qualified Roth IRA distributions normally treated for tax purposes? 10% penalty tax is applied Taxed as ordinary income Capital gains tax is applied Received income tax-free
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Received income tax-free
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What is another name for a Keogh plan? Roth IRA HR 10 plan Rollover plan 1040 plan
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HR 10 plan
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ERISA requires that a Summary Plan Description must be provided to a new plan member within how many days following the new member's eligibility date? 30 45 90 120
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90
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An employer that offers a qualified retirement plan (as opposed to a non-qualified plan) to its employees is eligible to avoid ERISA regulations make tax-deductible contributions to the plan make tax deductible contributions to key employees only make partial tax-deductible contributions to the plan
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make tax-deductible contributions to the plan
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In an individual retirement account (IRA), rollover contributions are subject to capital gains tax subject to ordinary income tax partially limited by dollar amount unlimited by dollar amount
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unlimited by dollar amount
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Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2? 10% tax penalty for early withdrawal Capital gains tax Income tax and penalty tax Ordinary income tax
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Income tax and penalty tax
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An officer for a corporation takes out numerous unsecured loans from the company's qualified retirement plan. Which of these rules is the plan in violation of? Key employee rule Top heavy rule Vesting rule Exclusive benefit rule
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Exclusive benefit rule
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When funds are transferred directly from one IRA to another IRA, what percentage of the tax is withheld? 10% 20% 30% None
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None
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First-time homebuyers are able to withdraw up to how much from their qualified IRAs without incurring the 10% early withdrawal penalty? $2,500 $5,000 $7,500 $10,000
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$10,000
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A life insurance producer's underwriting duties may include approving or declining a life insurance application seeking additional information requested by the insurance company ordering an MIB report determining the rate classification of the applicant
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seeking additional information requested by the insurance company
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An employee welfare plan exempt from ERISA regulations would be church plans indemnity plans split dollar plans accident only plans
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church plans
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An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction? 10% is withheld for income taxes 20% is withheld for income taxes 30% is withheld for income taxes Nothing is withheld
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20% is withheld for income taxes
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A description of a qualified plan's insurance contract may be found in which ERISA reporting form? Annual return/report (Form 5500) Shareholder's report IRS Form 1040 Summary report (Form 6500)
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Annual return/report (Form 5500)
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Which of the following statements is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made? Surrender charge is applied The account can be rolled into the surviving spouse's IRA Distributions will be received tax-free if surviving spouse is over age 59 1/2 Future distributions are payable to the owner's estate
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The account can be rolled into the surviving spouse's IRA
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What is the excise tax rate the IRS imposes on individuals aged 70 1/2 or older who do not take the required minimum distributions from their qualified retirement plan? 30% 40% 50% 60%
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50%
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Which of the following can be used to avoid the mandatory withholding tax on qualified plan distributions? Qualified plan waiver Trustee-to-trustee transfer Conduit IRA 1035 exchange
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Conduit IRA
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Misrepresenting pertinent policy provisions relating to coverage after a loss is A concealment in insurance application An unfair claims settlement practice An unfair discrimination between individuals A violation of the principle of adhesion
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An unfair claims settlement practice
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The Director may suspend a producer's license when the producer Fails to notify the insurance department of change of premium trust account location Rebates a portion of the commission to the insured Shares commissions with similarly licensed producers Fails to report annual commission earnings to the insurance department
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Rebates a portion of the commission to the insured
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EXCEPT for fraud, the time after issuance of a policy during which an insurance company may contest a health insurance claim due to the statements on an application is 10 days 90 days 2 years 5 years
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2 years
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Claims settlement practices of insurers are regulated by: The Internal Revenue Service The National Association of Insurance Commissioners Claims adjusters State insurance departments
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State insurance departments
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Misrepresentation on the application is Intentional Concealed Material Twisting
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Material
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In Ohio, viatical settlement brokers are permitted to do all of the following EXCEPT Charge a fee for their services Advertise the availability of viatical settlements Introduce viators to settlement providers Make the first transaction up to 30 days before approved for a license
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Make the first transaction up to 30 days before approved for a license
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Who reports an agent's termination of appointment to the Director? The agent The insurer The Insurance Department The State
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The insurer
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A cease and desist order issued against an agent Suspends the agent's certificate or broker's license Prevents the agent from receiving commissions Prohibits a specific practice listed in the order Terminates the agent's appointment with the insurer
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Prohibits a specific practice listed in the order
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A life insurance illustration showing future premiums being paid out of nonguaranteed values must disclose that These policy premiums will vanish The policy guarantees payment of these premiums The policyowner forfeits the option of paying these premiums from other sources The policyowner may need to resume premium payments depending on actual results
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The policyowner may need to resume premium payments depending on actual results
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During the first two years a life insurance policy is in force, the insurer may contest a policy for all of the following reasons EXCEPT Misstatement of age in the application Material misrepresentation in the application Fraud in the purchase of the policy Material concealment in the purchase of a policy
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Misstatement of age in the application
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All of the following are examples of unfair claim settlement practices EXCEPT Failing to promptly provide a reason for a claim denial Refusing arbitrarily and unreasonably to pay claims Denying unsubstantiated claims on a timely basis Misrepresenting pertinent facts of coverage
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Denying unsubstantiated claims on a timely basis
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Dividends from a stock company are paid to stockholders, whereas in a mutual company, dividends are reinvested as capital gains, used to reduce rates for policyowners paid quarterly to corporate officers in the form of a bonus paid to the policyowners paid to both the policyowners and shareholders
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paid to the policyowners
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Mutual insurers pay dividends to participating policyowners if the insurer has which of the following? Divisible surplus Reciprocal Dividend Agreement Certificate of Authority Participating clause
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Divisible surplus
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An insurable risk requires that the chance for both a loss or gain exists the loss must be catastrophic that the chance of loss be calculable that the loss must be incalculable
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that the chance of loss be calculable
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Which one of these is NOT considered to be an element of an insurable risk? Speculative risk Pure risk Loss cannot be catastrophic Loss must be due to chance
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Speculative risk
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All of these statements correctly describe an aleatory contract EXCEPT A legal wager is considered an aleatory contract Potential unequal exchange of value for both parties Only one party makes any kind of legally enforceable offer Element of chance is involved
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Only one party makes any kind of legally enforceable offer
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XYZ Insurance Company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums? Implied authority Apparent authority Express authority Assumed authority
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Implied authority
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What qualifies as acceptance of an insurance contract offer? A declined policy An issued policy The application and initial premium The initial premium only
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An issued policy
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What type of premiums are associated with individual mortgage protection life insurance policies? Level premiums Flexible premiums Modified premiums Decreasing premiums
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Level premiums
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John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income? 0% 25% 50% 100%
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100%
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Straight whole life insurance can be accurately described in all of these statements EXCEPT Policy protection normally expires at age 65 Nonforfeiture values are available to the policyowner Provides level protection with level premiums Cash value loans are permitted
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Policy protection normally expires at age 65
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How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies? Survivorship life policy is lower Survivorship life policy is higher Depends on the investment performance of the underlying accounts Both have the same actuarial costs
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Survivorship life policy is lower
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Which statement concerning a decreasing term life policy is accurate? Cash value decreases over the policy period Premium decreases over the policy period Face amount decreases over the policy period Face amount stays the same over the policy period
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Face amount decreases over the policy period
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Laura added a children's rider to her life insurance policy. What type of coverage was added? Level term Increasing term Decreasing term Juvenile term
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Level term
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Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes? The gain is treated as taxable income and a penalty tax is imposed on the gain The gain is treated as taxable income but no additional penalties are applied The gain is not taxable but a penalty is assessed Surrendering an MEC is considered a tax and penalty-free transaction
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The gain is treated as taxable income and a penalty tax is imposed on the gain
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When does the insured stop making payments under a thirty-payment whole life policy? At the time of death or 30 years after the policy's inception, whichever comes first It depends on the performance of the underlying investment account When the cash value surpasses the face amount At age 100
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At the time of death or 30 years after the policy's inception, whichever comes first
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What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued? $0 $50,000 Under $50,000 initially, but decreases annually over time Under $50,000 initially, but increases annually until fully insured
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Under $50,000 initially, but increases annually until fully insured
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Which of these is NOT an allowable deduction made from premium payments of the cash value of a variable life insurance policy? Mortality costs Administrative charges Investment management fees Federal premium taxes
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Federal premium taxes
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Which of the following combinations best describe a universal life insurance policy? A mutual fund and an endowment policy A term insurance policy and a whole life policy A modified endowment policy and an annual term insurance policy A flexible premium deposit fund and a monthly renewable term insurance policy
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A flexible premium deposit fund and a monthly renewable term insurance policy
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Which statement regarding the waiver of premium rider is accurate? Policy loans are used to keep the policy active Cash payment is not directly provided to the policyowner Insurance companies are required to offer this to all policyowners Premiums are waived in the event of bankruptcy
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Cash payment is not directly provided to the policyowner
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A life insurance policy that includes a return of premium rider will pay the beneficiary how much upon the insured's death? Total premiums paid plus the policy face amount Face amount plus interest accrued Interest accrued plus total premiums paid Face amount minus any outstanding loan balances
answer
Total premiums paid plus the policy face amount
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Which life insurance policy option allows the policyowner to have coverage equal to the net death benefit of the lapsed policy? Reduced paid-up nonforfeiture option Accelerated benefits option Extended term nonforfeiture option Cash surrender option
answer
Extended term nonforfeiture option
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Which benefit is normally payable to a life insurance policyowner when the insured's life expectancy has been severely limited? Reduced paid-up option Accelerated (living) benefit Return of Premium benefit Extended term option
answer
Accelerated (living) benefit
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What happens when a policyowner borrows against the cash value of his life insurance policy? The death benefit would be reduced by the outstanding loan balance No additional loans can be taken out in the future The amount borrowed is added to the policyowner's gross income for tax purposes The interest on the loan is tax-deductible
answer
The death benefit would be reduced by the outstanding loan balance
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What happens to the death benefit of a life insurance policy if the insured elects a partial payment from the accelerated (living) benefit provision? None will be given Increased Reduced No change
answer
Reduced
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How may an insurance company classify an accidental death benefit on a life policy? As an optional policy rider As a provision of the policy As a nonforfeiture option As a mandatory policy rider
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As an optional policy rider
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The absolute assignment of a life insurance policy results in the assignee receives all incidents of ownership the assignee receives partial incidents of ownership the transfer of ownership is revocable at the discretion of the original policyowner evidence of insurability must be proven before ownership is transferred
answer
the assignee receives all incidents of ownership
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Which life insurance policy would be eligible to include an automatic premium loan provision? Increasing term Level term Decreasing term Whole life
answer
Whole life
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In the event of premium default, which life insurance provision will use the cash value to keep the policy in force? Waiver of premium Automatic premium loan Reinstatement Policy loan
answer
Automatic premium loan
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What is the term used for an insurance contract that identifies individuals by relationship to a specific organization? Employer insurance Group insurance COBRA plan Industrial insurance
answer
Group insurance
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The policy provision that permits an employee to change from a group plan to an individual plan is called the assignment provision conversion provision certificate provision modification provision
answer
conversion provision
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Which settlement option makes minimum guaranteed dollar payments over a stated number of years? Interest-Only Fixed-Period Fixed-Amount Life Income
answer
Fixed-Period
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Which life insurance settlement option pays a stated monthly payment until both principal and interest are exhausted? Fixed amount installment option Fixed period installment option Life income option Interest only option
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Fixed amount installment option
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A contingent beneficiary is described as the primary person who receives the death benefits if the insured dies person who receives the death benefits if the primary beneficiary dies before the insured person who receives the death benefits if there is no named beneficiary person whose approval is needed before a beneficiary designation is changed
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person who receives the death benefits if the primary beneficiary dies before the insured
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A life insurance company's spendthrift clause would have no effect if the beneficiary is paid the proceeds as a fixed-period installment life income option fixed-amount installment lump-sum payment
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lump-sum payment
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How much is normally paid to a policyowner in a life (viatical) settlement? Total premiums paid plus interest Full face amount More than the face amount Less than the death benefit
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Less than the death benefit
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When premiums are calculated, one factor would be the expenses of the beneficiary insurance company policyowner producer
answer
insurance company
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Which of the following statements about the installments for a fixed period settlement option in life insurance policies is NOT true? The periodic payment amount is determined by the beneficiary's age The shorter the period of time, the larger each installment The longer the period of time, the smaller each installment The installment payments are composed of both principal and interest
answer
The periodic payment amount is determined by the beneficiary's age
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Kevin has an existing life insurance policy and assigns it to another insurer for a new contract. How would this transaction be treated for tax purposes? As a Section 1035 exchange As a transfer As a rollover As a Section 1040 exchange
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As a Section 1035 exchange
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A signed good health statement may be collected by a life producer at the time of policy issue application policy delivery physical examination
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policy issue
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Which of these is NOT an underwriting responsibility of a life insurance agent? Asking relevant questions concerning an applicant's avocations Requesting an attending physician's report (APR) Ordering an inspection report Determining the final rate classification
answer
Determining the final rate classification
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The interest paid during an annuity's payout period is considered nontaxable taxable as ordinary income taxable as capital gains tax-deductible
answer
taxable as ordinary income
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The interest credited to the cash values of personally-owned non-qualified annuities is considered a tax credit tax-deferred tax-deductible tax-exempt
answer
tax-deferred
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Interest is credited to a fixed annuity no lower than the variable contract rate contract guaranteed rate current rate of inflation prime rate
answer
contract guaranteed rate
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An owner's cost basis for a non-qualified deferred annuity is typically the same as the annuity's cash value premiums paid into the annuity benefits payable to the annuitant interest earned within the annuity
answer
premiums paid into the annuity
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Which statement concerning a deferred annuity is correct? The contract cannot be assignable by the owner Requires a single premium payment The owner can be the beneficiary, annuitant, or neither Benefits start immediately after contract formation
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The owner can be the beneficiary, annuitant, or neither
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Which of the following normally pertains to an immediate annuity? Tax-free benefit payments Installment premium payments Lack of an accumulation period Lump-sum benefit
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Lack of an accumulation period
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What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up? Increases Decreases Not affected by inflation Tied to stock index
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Decreases
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The contractual rights that allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are called nonforfeiture options settlement options conversion options surrender options
answer
nonforfeiture options
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Which of these annuity features is meant to discourage withdrawals and exchanges? Annuitization Annual fees Withdrawal penalty Surrender charges
answer
Surrender charges
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Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will discontinue after a stated number of years remain a constant dollar amount for the duration of the annuity period pay a lump sum if the annuitant dies vary according to the underlying investment performance
answer
remain a constant dollar amount for the duration of the annuity period
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A business may purchase an annuity for all of the following reasons EXCEPT Structuring a liability settlement payment Funding a non-qualified deferred compensation plan Accumulating assets on a tax-deferred basis Providing a pension to employees
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Funding a non-qualified deferred compensation plan
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An individual, age 45, would like to help pay for his daughter's college expenses in 10 years. Which annuity would be appropriate for this individual? Joint and survivor annuity Deferred annuity 403(b) plan Immediate annuity
answer
Deferred annuity
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A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid mandatory income tax withholding on the amount transferred paying transfer fees paying trustee fees ever paying income taxes on the distributions
answer
mandatory income tax withholding on the amount transferred
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The payment of the first premium, the promise to pay a covered loss, and the agreement to abide by policy conditions are all examples of consideration legal purpose representation acceptance
answer
consideration
