CA life and Health: Life Insurance Basics 223 Questions with Answers
A family's need for income is greatest during the - CORRECT ANSWERFamily
... [Show More] Dependency Period
Time after the insured has died, leaving a surviving spouse with dependent children to support.
Which of the following would be least likely to be considered a legitimate need that would be paid by insurance proceeds? - CORRECT ANSWERVacation travel expenses
THere are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Vacation expenses are most likely to be considered a luxury and not a need.
Which of the following is NOT a type of information that needs to be gathered in order to determine the value of someone's life when using the needs approach?
A. Outstanding debt
B. Mortgages
C. Expenses
D. Estimated longevity - CORRECT ANSWERD. Estimated Longevity
There are four main types of information that an insurer needs to obtain in order to determine the value of some's life: debt status, income, mortgage, and expenses. Longevity is not a factor in the personal financial planing process.
What falls in the category of costs associated with death? - CORRECT ANSWERCosts would take into account final medical expenses the insured, funeral expenses, and a day to day expenses of maintaining the family including rent or mortgage payments, car payments, utilities, groceries, etc.
What is the preretirement period? - CORRECT ANSWERPeriod after children are no longer dependent upon surviving spouse for support, but before surviving spouse qualifies for social security benefits.
What is the human life Value approach? - CORRECT ANSWERHuman Life Value Approach gives the insured an estimate of what would be lost to the family in the event of premature death of the insured. Calculates and individuals life value by looking at the insured's wages, inflation, number of years to retirement, and time value of money.
What is the needs approach? - CORRECT ANSWERBased on predicted needs of a family after the premature death of an insured.
Some factors are income, amount of debt, investments, and other ongoing expenses.
What is a Key person Insurance? - CORRECT ANSWERBusiness suffers a financial loss because of the premature death of a key employee--someone who has a specialized knowledge, skills or business contacts.
What is it when buy-sell insurance? - CORRECT ANSWERBuy Sell Insurance is a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. Also, referred to as business continuation agreement.
Cross Purchase - CORRECT ANSWERUsed in partnerships when each partner buys a policy on the other
Entity Purchase - CORRECT ANSWERWhen the partnerships buy the policies on the partners
Stock Purchase - CORRECT ANSWERused by privately owned corporations when each stockholder buys a policy on each of the others
Stock redemption - CORRECT ANSWERwhen the corporations buys one policy on each shareholder
In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? - CORRECT ANSWERTHE CUSTOMER'S ASSOCIATES, FRIENDS, AND NEIGHBORS PROVIDE THE REPORT'S DATA.
Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.
Which of the following must be disclosed in all advertisements and policies of term life insurance for individuals 55 years of age or older? - CORRECT ANSWERInsurance monetary value index
When a term life insurance monetary value index is adopted by the commissioner, it must be disclosed in all advertisements and policies of term life insurance for individuals age 55 and older.
Which of the following is an example of liquidity in a life insurance contract? - CORRECT ANSWERCash Value available to the policy owner:
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.
Which of the following is NOT true regarding the Needs Approach method of determining the value of an individual's life? - CORRECT ANSWERNeed is predicted using the number of years until the insured's retirement.
NEEDS APPROACH: need is determined by the predicted needs of the family after the premature of the insured, which must be assumed will happen immediately. The policy allows for benefits to be collected upon the insured's death.
Why should the producer personally deliver the policy when the first premium has already been paid? - CORRECT ANSWERTo help the insured understand all aspects of the contract.
It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.
If an insured changes his payment plan from monthly to annually, what happens to the total premium? - CORRECT ANSWERDecreases, because the insurer would have the entire premium to invest for a full year, they would reduce the premium amount.
If a business owner becomes totally disabled, a business overhead expense policy will pay all of the following EXCEPT
A. Utilities
B. Employee payroll
C. Loss of the owner's income
D. Rent - CORRECT ANSWERC. Loss of the owner's income
If business owners want coverage for the loss of their own income due to total disability, they need to purchase a separate individual disability income policy.
The mode of premium payment - CORRECT ANSWERFrequency and amount of the premium payment.
Refers to frequency policy owner pays the premium: monthly, quarterly, semiannually, or annually.
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained? - CORRECT ANSWER3 days: investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? - CORRECT ANSWERExecutive is the owner and executive pays the premium.
Exec buys policy and pays premium, employer reimburses the executive for cost. Exec receiving compensation, the amount paid by the employer would be considered taxable income.
If an insurer issued a policy based on the application that had unanswered questions, which of following will be TRUE? - CORRECT ANSWERThe policy will be interpreted as if the insurer waived its right to have an answer on the application.
Unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage later because of unanswered questions.
Stranger-originated life insurance policies are in direct opposition to the principle of - CORRECT ANSWERInsurable Interest
because the purchaser of a stranger originated life insurance policy doesn't know the insured, or have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest.
A return of premium term life policy is written as what type of term coverage? - CORRECT ANSWERINCREASING
Return of premium (ROP) life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.
When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy? - CORRECT ANSWERThey can convert their coverage to permanent life insurance without evidence of insurability.
Family Members may convert their term coverage to permanent insurance if requested within the time stated in the policy.
When would a 20-pay whole life policy endow? - CORRECT ANSWERWhen the insured reaches age 100.
A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however completely paid off in 20 years.
An insured buys a 5 year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium? - CORRECT ANSWERIt will increase because the insured will be 5 years older than when the policy was originally purchased.
The premium will remain level during the entire level premium term (5 years) policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal.
A policy owner of a universal life policy may skip paying the premium and the policy will not lapse as long as - CORRECT ANSWERThe policy contains sufficient cash value to cover the cost of insurance.
Universal Life insurance, policy owner may skip premium payment without lapsing the policy as long as the policy contains sufficient cash value at the time to cover the cost of insurance for that premium period.
Which statement is NOT true regarding a Straight Life policy?
A. Face value of policy is paid to the insured at age 100.
B. Usually develops cash value by the end of the third policy year.
C. It has lowest annual premium of the three types of Whole Life policies.
D. Its premium steadily decreases over time, in response to its growing cash value. - CORRECT ANSWERD. its premium steadily decreases over time, in response to its growing cash value.
Straight Life Policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.
The type of insurance sold to a debtor and designed to pay the amount due on a loan if the debtor dies before the loan is repaid is called - CORRECT ANSWERCredit Life
Credit life is most often sold by lenders and is term insurance written with a face amount and term that is matched to the amount and length of the loan period.
Which policy component decreases in decreasing term insurance? - CORRECT ANSWERFace amount:
Face amount because decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.
Which of the following is NOT allowed in credit life insurance? - CORRECT ANSWERCreditor requiring that a debtor buys insurance from a certain insurer.
In credit life insurance, creditor may require that the debtor has a life insurance, but they cannot tell you who to buy the insurance from.
Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? - CORRECT ANSWEROption B
Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.
Which of the following is called a "second-to-die" policy? - CORRECT ANSWERSurvivorship life
Survivorship life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.
The policy owner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? - CORRECT ANSWERThe death benefit can be increased by providing evidence of insurability.
The policy owner (insured) would need to prove insurability for the amount of the increase.
To sell variable life insurance policies, an agent must received all of the following EXCEPT - CORRECT ANSWERNOT: A SEC registration
NEEDS: life insurance license, FINRA registration, Securities license.
Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities not, agents.
The following are features of the indexed universal life EXCEPT
A. Policy's cash value is dependent on the performance of the equity index.
B. Sale of this product requires a securities license.
C. Flexible premium.
D. Adjustable death Benefit - CORRECT ANSWERC. Sale of this product requires a securities license.
Indexed Universal Life policies have named of the same features as the Universal Life: flexible premiums, adjustable death benefits, and an investment component. However, the policy's cash value is dependent upon the performance of the equity index. Sale of the indexed universal life products does not require a securities license.
All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy? - CORRECT ANSWERLower
Survivorship life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivor ship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.
Which of the following is TRUE about a class designation? - CORRECT ANSWERBeneficiaries are not identified by name.
A class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive.
The ownership provisions entitles the policy owner to do all of the following EXCEPT
A. Receive a policy loan
B. Assign the policy
C. Designate a beneficiary
D. Set premium rates - CORRECT ANSWERD. Set premium rates
The insurer sets premium rates based upon underwriting considerations.
Which nonforfeiture options provides coverage for the longest period of time? - CORRECT ANSWERReduced Paid up, is a nonforfeiture option that provides protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.
When a reduced paid up nonforfeiture option is chosen, what happens to the face amount of the policy? - CORRECT ANSWERIt 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 is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.
The paid up addition option uses the dividend - CORRECT ANSWERTO purchase a smaller amount of the same type of insurance as the original policy.
Dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.
According to the entire contract provision, what document must be made part of the insurance policy - CORRECT ANSWERA copy of the original application must contain a copy of the original application.
Which of the following is TRUE about the 10 day free look period in a life insurance policy? - CORRECT ANSWERIt begins when the policy is delivered
The 10 day free look provision is a mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid.
An insured pays $1,200 annually for her life insurance premium. the insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What options does this describe? - CORRECT ANSWERReduction of Premium
The reduction of premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.
What is the other term for the cash payment settlement option? - CORRECT ANSWERLump Sum
Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.
An insured wants to change from an annual premium mode to a monthly premium mode. Which of the following is true? - CORRECT ANSWERThis change can only be made on the policy's anniversary.
The frequency of premium payments can be changed on the policy's anniversary date, provided that the payment is not less than a minimum amount that the insurer requires.
The automatic premium loan provision is activated at the end of the - CORRECT ANSWERGrace 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.
What happens when a policy is surrendered for its cash value? - CORRECT ANSWERCoverage ends and the policy cannot be reinstated.
Z falls from the roof of his house while fixing it and damages his spinal column enough to render him disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will Z receive? - CORRECT ANSWERMonthly premium waiver and monthly income
The Disability Income Benefit rider waives the policy premiums, just like the waiver of Premium rider. Unlike the waiver of premium rider, it also allows the insured to receive a weekly or monthly income during the disability period.
Every long term care insurer in CA must submit to the commissioner a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long term care insurance. These submitted agent lists must be updated at least - CORRECT ANSWERSemiannually
According to CIC10234.93, the insurer must submit an updated list semiannually of all agents to solicit long term care insurance.
A long stretch of national economic hardship causes 7% rate of inflation. A policy owner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? - CORRECT ANSWERCost of living Rider
Cost of living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.
All of the following are the responsibilities of every long term care insurer in CA except - CORRECT ANSWERProvide enough business to solicit long-term care insurance
Long-term care insurers must maintain strict requirements. These include establishing marketing procedures to assure that comparison is fair and accurate and to assure that excessive insurance is not sold. In addition, insurers must semiannually submit to the commissioner a list of all agents authorized to solicit for the sale of long-term care insurance
A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called - CORRECT ANSWERCost of Living Rider adjusts the face amount of the policy to maintain the relationship of the face amount and increases in the cost of living.
What is the waiting period on a waiver of premium rider in life insurance policies? - CORRECT ANSWER6 months
Most insurers impose a 6 month waiting period from the time of disability until the first premium is waived.
M is the owner of a $100,000 life policy with a triple indemnity rider for accidental death. When M is killed in a car accident, it is determined that the accident was his fault. The triple indemnity rider in M's policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive? - CORRECT ANSWER$100,000. It was the insureds fault so triple indemnity rider doesn't apply. Death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the 3x indemnity rider is void, but beneficiary will receive death benefit.
All of the following are features and requirements of Living Needs Rider EXCEPT - CORRECT ANSWERDiagnosis must indicate that death is expected within 3 years
Living Needs Rider provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years.
At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called - CORRECT ANSWERGuaranteed insurability
Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.
The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called - CORRECT ANSWERWaiver of premium
Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insure and the waiver of cost of insurance is found in Universal Life.
All of the following are true regarding the guaranteed insurability EXCEPT - CORRECT ANSWERThis rider is available to all insureds with no additional premium
Guaranteed insurability may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age of 40.
In general terms, IRA contributions - CORRECT ANSWERAre tax deductible
Individuals who are not covered by an employer-sponsored plan may deduct the full amount of their IRA contributions regardless of their income level.
Why is an equity indexed annuity considered to be a fixed annuity? - CORRECT ANSWERIt has a guaranteed minimum interest rate.
While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.
All other factors being equal, which of the following types of annuities will generally provide the highest monthly income? - CORRECT ANSWERStraight life
Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; therefore, it has the potential to provide the highest monthly income. Any time a "period certain" option is included, it will reduce the monthly payout amount because, even if the annuitant dies, the company must continue to pay the benefits for the period certain.
All of the following statements about equity index annuities are correct EXCEPT - CORRECT ANSWERThe annuitant receives a fixed amount of return
Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.
All of the following employees may use a 403(b) plan for their retirement EXCEPT - CORRECT ANSWERCEO of a private corporation
Not all public employees are eligible for 403(b) plans, or tax sheltered annuities, only employees of public education (local, state, or federal), as well as employees of charitable organizations.
Which of the following is TRUE for both equity indexed annuities and fixed annuities? - CORRECT ANSWERThey have a guaranteed minimum interest rate.
While equity indexed annuities earn higher interest rates than fixed annuities, both types guarantee a specific minimum interest rate.
Who is eligible to purchase an IRA? - CORRECT ANSWERAnyone under the age of 70 1/2 who has earned income
Which of he following is NOT a legitimate use of annuities by businesses? - CORRECT ANSWERCreating a tax shelter
Annuities are most often used by businesses to fund employee retirement plans, to provide deferred compensation for employees or an investment vehicle.
The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE? - CORRECT ANSWERThe beneficiary will receive the greater of the money paid into the annuity or the cash value.
If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or receives the money into the annuity.
Which of the following is NOT true regarding the accumulation period of an annuity? - CORRECT ANSWERIt would not occur in a deferred annuity
Accumulation period is the period of time over which the annuitant makes payments into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).
Which of the following is NOT true regarding the annuitant - CORRECT ANSWERThe annuitant cannot be the same person as the annuity owner.
While they don't have to be, the annuitant and annuity owner are often the same person. The Annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person.
How are the contributions to a tax-sheltered annuity treated with regards to taxation? - CORRECT ANSWERThey are not included as tax income for the employee, but are taxable upon distribution.
Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal
An insured has the right to cancel a policy by written notification to the insurer. This notification may be mailed to the insurer or returned to the original agent who made the sale. Upon receipt of the cancellation request, the insurer will - CORRECT ANSWERRefund any premiums and policy fees within 30 days of notice if the policy is within the cancellation period specified by the insurer.
An insurer has 30 days from notification of cancellation to refund any premiums and policy fees and return the parties to the place they were prior to the policy being sold.
Every individual life insurance policy must provide for a free-look provision that lasts for at least - CORRECT ANSWER10 days
Insurers must allow individual life insurance customers the ability to return their new policy within 10-30 days( this time period is up to the insurer) for a full refund.
During the free-look period, the premium for a variable annuity may be invested in all of the following EXCEPT - CORRECT ANSWERValue funds
During the 30-day cancellation (free-look) period, the premium for a variable annuity may be invested in fixed-income investments and money-market funds, unless the investor specifically requests that the premiums be invested in the mutual funds.
Which of the following is true regarding a policy with a face value less than $10,000? - CORRECT ANSWERIf it's returned during the free look period, the agreement will be void.
IF the owner returns the policy within the free look period, the agreement will be void from its beginning. All premiums and any policy fees that have already been paid must be refunded to the owner.
Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance - CORRECT ANSWERReplacement Rule
Anytime a new policy is issued that replaces or modifies existing insurance, a replacement form must be submitted to the ceding company.
To which of the following situations does the Replacement Regulation apply? - CORRECT ANSWERWhole life insurance
Replacement Regulation does not apply to credit life, group life and group annuities, or transactions with the same insurer.
Which of the following insureds has a right to cancel an individual policy within 30 days? - CORRECT ANSWERInsureds 60 years of age or older.
If the insured on the individual life policy is 60 years of age or older, the right of rescission for a full refund must last for at least 30 days.
During the cancellation period, an insurer must refund any premiums and policy fees within how many days of written cancellation notice by the insured? - CORRECT ANSWER30
Once the insurer receives notification of rescission , the company has 30 days to issue the refund of premiums and policy fees.
Any insurer who engages in the insurance business and violates the Code with respect to insurance replacement shall on the first violation? - CORRECT ANSWERBe fined a sum of $10,000
An insurance company that violates the replacement provision of the Code will be fined $10,000 for the first time offense.
An insurer has been found guilty of a Code Violation regarding replacement. The insurer then repeats the violation. What will be the minimum penalty? - CORRECT ANSWER$30,000
Additional violations of replacement article by an insurer will result in increased fines ($30,000 to $300,000). Commissioner may suspend or revoke the license of any person or entity that violates this article.)
Every policy of an individual life insurance must include a notice of right to cancel the policy, stating the specific time frame for the free-look period. Once the insure has cancelled the policy, within how many days must the insurer refund all premiums and policy fees? - CORRECT ANSWER30 days
All premiums and policy fees paid for the policy must be refunded by the insurer to the owner within 30 days from the date that the insurer is notified that the insured has cancelled the policy.
During replacement of life insurance, a replacing insurer must do which of the following? - CORRECT ANSWERObtain a list of all life insurance policies that will be replaced
The replacing insurance company must require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant, and send each existing insurance company a written communication advising of the proposed replacement.
Social security was created to protect against all of the following except - CORRECT ANSWERBad investment choices
Social security is a federal program enacted in 1935, that is designed to provide protection for eligible workers and their dependents, against financial loss due to death, disability, superannuation (retirement income), and sickness in old age.
Which of the following is NOT a factor determining qualifications for social security disability benefits? - CORRECT ANSWERWorker's occupation
A workers specific occupation is not a factor in determining benefits, so long as the workers has earned the required amount of work credits.
If a person is disabled at age 27 and meets social security's definition of total disability, how many work credits must he/she have earned to receive benefits? - CORRECT ANSWER12 work credits
Persons disable between ages 24 and 31 can qualify for benefits if they have credit for having worked half of the time between 21 and the start of the disability. For example, if joe becomes disabled at age 27, he would need 12 credits (or 3 years worth) out of the prior 6 years ( between ages 21 and 27).
A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why? - CORRECT ANSWERThe purpose of the group was to purchase life insurance.
In order to qualify for small group life insurance, a group must be formed for a purpose other than attaining life insurance.
All of the following are general requirements of a qualified plan EXCEPT - CORRECT ANSWERThe plan must provide an offset for social security benefits.
Plans must meet the general requirements established by the RIS
When employees are covered by group insurance, they receive - CORRECT ANSWERA certificate of insurance
The employer receives original contract, but employees need only be given a certificate of insurance showing their coverage and privileges.
Which of the following is the required number of participants in a contributory group plan? - CORRECT ANSWER75%
Under a contributory plan, an insurer will require that 75% of eligible employees be included in the plan.
For a retirement plan to be qualified, it must be designed for the benefit of - CORRECT ANSWEREmployees.
Qualified plans are designed for the exclusive of the employees and their beneficiaries.
A employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his - CORRECT ANSWERAttained age
If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability. The insurer will determine what types of policy an employee may convert to, but it must be issued at a standard rate, based on the individual's attained age.
If a retirement plan or annuity is "qualified," this means - CORRECT ANSWERIt is approved by the IRS
A qualified retirement plan is approved by the irs, which then gives both the employer benefits such as deductible contributions and tax deferred growth
Who is a third party owner? - CORRECT ANSWERA policy owner who is not the insured
Legal term used to identify an individual or entity that is not an insured under the contract, but that has legal enforceable right under it.
Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policy owner? - CORRECT ANSWERThird Party ownership
Contracts that are owned by someone other than the insured are known as third party ownership. Most policies involving third party ownership are written in business situations or for minors in which the parent owns the policy.
What type of annuity activity will cause immediate taxation of the interest earned? - CORRECT ANSWERSurrendering the annuity for cash
One-sum cash surrenders give rise to immediate taxation of the interest earned.
The premiums paid by the employer in a business life insurance policy are - CORRECT ANSWERTax deductible by the Employer
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.
Death benefits payable to a beneficiary under a life insurance policy are generally - CORRECT ANSWERNot subject to income taxation by the federal government
When premiums are paid with after tax dollars, the death benefit is generally not subject to federal income taxation.
What part of the internal revenue code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences? - CORRECT ANSWERSection 1035 Policy Exchange
As long as the funds are transferred intact and the form is filled, taxation is deferred.
What is the main purpose of the Seven-pay test? - CORRECT ANSWERIt determines if the insurance policy is an MEC
The seven-pay test determines whether an insurance policy is "over-funded" or if it's a modified endowment contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.
Which of the following statements regarding the taxation of modified endowment contracts (MEC) is FALSE? - CORRECT ANSWERWithdrawals are not taxable.
Any distributions from MEC's are taxable, including withdrawals and policy loans.
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 - CORRECT ANSWER50% tax on the amount not distributed as required.
When immediate annuities are used to pay IRA benefits distributions must begin no later than age 70 1/2 in order for the annuitant to avoid penalties. The penalty is 50% of the shortfall from the required annual amount.
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is - CORRECT ANSWERA Modified Endowment Contract (MEC)
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.
Which of the following is NOT an allowable 1035 exchange? - CORRECT ANSWERA whole life insurance policy is exchanged for a term insurance policy.
The key is that the exchange may not be from a less tax-advantaged contract to a more tax-advantaged contract. "same to same" is acceptable.
Which of the following terms is used to name the nontaxed return of unused premiums? - CORRECT ANSWERDividend
The return of unused premiums is called a dividend. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums.
In life insurance policies, cash value increases - CORRECT ANSWERGrow tax deferred
Generally life insurance cash values are only income taxed if the policy is surrendered (totally or partially) and the cash value exceeds the premiums paid.
L as a major medical policy with a $500 deductible and 80/20 coinsurance. L is hospitalized and sustains a $2,500 loss. What is the maximum amount that L will have to pay? - CORRECT ANSWER$900 (deductible + 20% of the bill after deductible [20% of $2,000])
L would first pay the $500 deductible; out of the remaining $2,000, the insurer will pay 80% ($1,600) and the insured will pay 20% ($400).
In which of the following situations is it illegal for an insurer to disclose privileged information about an insured? - CORRECT ANSWERA researcher for marketing purposes
There are certain circumstances in which it is legal for an insurer to disclose privileged information about an insured, including law enforcement, auditing, and legal purposes.
On a health insurance application, a signature is required from all of the following individuals EXCEPT - CORRECT ANSWERThe spouse of the policy owner
Every health insurance application requires the signature of the proposed insured, the policy owner (if different than the insured), and the agent who solicits the insurance.
Which of the following is NOT a feature of a guaranteed renewable provision? - CORRECT ANSWERThe insurer can increase the policy premium on an individual basis. [Show Less]