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Insurance Chapter 4 Questions

all of the following would be different between qualified and nonqualified retirement plans EXCEPT1. taxation on accumulation2. taxation of withdrawals3. taxations of contributions4. IRS approval requirements taxation on accumulation
an employee quits his job on May 15 and doesn’t convert his group life policy to an individual policy for 2 weeks. he dies an accident on June 1. which of the following statement best describes what will happen?1. the insurer will pay a reduce death benefit to the beneficiary2. the insurer will pay the death benefit minus one month’s premium3. the insurer will pay nothing because the employee has terminated his group insurance and hasn’t started individual one4. the insurer will pay the full death benefit from the group policy to the beneficiary the insurer will pay the full death benefit from the group policy to the beneficiary
which of the following is an example of liquidity in a life insurance contract?1. the death benefit paid to the beneficiary2. the flex premium3. the money in a savings account4. the cash value available to the policyowner the cash value available to the policyowner
in a life settlement contract, whom does the life settlement broker represent1. owner2. insurer3. beneficiary4. life settlement intermediary owner
in order to quality for conversion from a group life policy to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?1. 12. 33. 54. 10 5
who is a third-party owner?1. an insurer who issues a policy for two people2. an employee in a group policy3. an irrevocable beneficiary4. a policyowner who is not the insured a policyowner who is not the insured
all of the following are business uses of life insurance EXCEPT1. funding against financial loss caused by the death of a key employee2. funding business continuation agreements3. funding against general company financial loss4. compensating executives funding against general company financial loss
which of the following is true regarding taxation of accelerated benefits under a life insurance policy?1. they are tax free to terminally ill insured2. they are always taxable to chronically ill insured3. they are always taxed4. there is a 10% penalty for early distribution of the death benefit they are tax free to terminally ill insured
which of the following is the best reason to purchase life insurance rather than annuities?1. to create regular income payments2. to liquidate a sum of money over a lifetime3. to create an estate4. to liquidate a sum of money over a period of years
if a life insurance policy develops cash value faster than a seven-pay whole life contract, it is1. endowment2. multiplicative policy3. modified endowment contract4. accelerated policy modified endowment contract
the minimum number of credits required for partially insured status for social security disability benefits is1. 4 credits2. 6 credits3. 10 credits4. 40 credits 6 credits
which of the following is NOT true regarding policy loans?1. an insurer can charge interest on outstanding policy loans2. a policy loan may be repaid after the policy is surrendered3. money borrowed from the cash value is taxable4. policy loans can be repaid at death money borrowed form the cash value is taxable
to attain currently insured status under social security, an worker must have earned at least how many credits during the last 13 quarters?1. 4 credits2. 6 credits3. 10 credits4. 40 credits 6 credits
which of the following is incorrect concerning a noncontributory group plan?1. the employee receive individual policies2. they help to reduce adverse selection against insurer3. they require 100% employee participation4. the employer pays 100% of the premiums the employees receive individual policies
a key person insurance policy can pay for which of the following?1. hospital bills of the key employee2. cost of training a replacement3. loss of personal income4. workers compensation cost of training a replacement
an employee quits her job where she has a balance of $10,000 in her qualified plan. if she decides to do a direct transfer from her plan to a traditional IRA, how much will be transferred from one plan adminstrator to another and what is the tax consequence of a direct transfer?1. $8000, no tax consequence2. $8000, tax on growth only3. $10,000, tax on growth only4. $10,000, no tax consequences $10,000, no tax consequences
a producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. this is a personal use of life insurance know as1. survivor protection2. life planning3. survivorship insurance4. juvenile protection provision survivor protection
which of the following terms is used to name the nontaxed return of unused premiums?1. dividend2. premium return3. interest4. surrender dividend
SIMPLE plans require all of the following EXCEPT1. employees must receive a minimum of $5000 in annual compensation2. at least 1000 employees3. no other qualified plan can be used4. no more than 100 employees at least 1000 employees
which of the following is the required number of participants in a contributor group plan?1. 75%2. 100%3. 25%4. 50% 75%
social security was created to protect against all of the following EXCEPT1. sickness in old age2. premature death3. disability4. bad investment choices bad investment choices
an IRA purchased by a small employer to cover employees is known as a 1. 403(b) plan2. simplified employee pension plan3. 401(k) plan4. defined contribution plan simplified employee pension plan
if an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?1. taxable only if it exceeds the amounts paid for premiums by 50%2. automatically taxable3. only taxable if the cash value exceeds the amount paid for premiums4. not considered to be taxable it is only taxable if the cash value exceeds the amount paid for premiums
which of the following terms means a result of calculation based on the average number of month the insured is projected to live due to medical history and mortality factors?1. morbidity2. life expectancy3. mortality rate4. risk exposure life expectancy
all of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT1. funds accumulate on a tax-deferred basis2. employee and employer contributions are not counted as income to the employee for income tax purposes3. at distribution, all amounts by the employee are tax free4. employer contributions are tax deductible as ordinary business expense at distribution, all amounts received by the employee are tax free
a 60 year old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. which of the follow is true?1. the amount of the distribution is reduced by the amount of a 20% withholding tax2. no taxes are due since the plan participant is over age 59 1/23. there is a 10% early withdrawal penalty4. the amount distributed is subject to ordinary income tax
which of the following would describe a legal document which would dictate who can buy a deceased partner’s share of the business and for what amount?1. split dollar agreement2. buy-sell agreement3. profit and loss agreement4. key person agreement buy-sell agreement
what is the name of the insured who enters into a viatical settlement?1. viatical broker2. viator3. third party4. contingent viator
when an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n)1. key person policy2. fraternal association3. aleatory contract4. executive bonus executive bonus
in life insurance policies, cash values increases1. are income taxable immediately2. are taxed annually3. are only taxed when owner reaches age 654. grow tax deferred grow tax deferred
an internal revenue code provision that specifically provides for an individual retirement plan for public school teachers is a(n)1. 403(b) plan (TSA)2. keogh plan3. roth IRA4. sep 403(b) plan (TSA)
an individual has been diagnosed with Alzheimer’s disease. he is insured udner a life insurance policy with the accelerated benefits rider. which of the following is true regarding taxation of the accelerated benefits?1. principal is tax free, but interest is taxed2. entire benefit will be received tax free3. the entire living benefit is considered taxable income4. portion of the benefit up to a limit is tax free; the rest is taxable income portion of the benefit up to a limit is tax free; the rest is taxable income
which of the following types of insurance policies would perform the function of cash accumulation?1. increasing term2. whole life3. term life4. credit life whole life
all of the following statements concerning employer sponsored nonqualified retirement plan are true EXCEPT1. plan is legal method of accumulating money for retirement needs.2. plan can discriminate as to who may participate3. plan is not approved to favorable tax treatment by IRS4. the employer can receive a current tax deduction for any contribution made into a plan the employer can receive a current tax deduction for any contribution made into a plan
if an insured worker has earned 40 quarters of coverage, the worker’s status under social security disability is1. permanently insured2. fully insured3. partially insured4. correctly insured full insured
an employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his1. experience rating2. group rate3. insurer’s scheduled rate4. attained age attained age
what is the primary purpose of a 401(k) plan?1. life insurance2. retirement3. education funds4. to receive dividends over a certain period retirement
which of the following employees under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated?1. those who have no history of claims2. those who have been insured under the plan for at least 5 years3. those who have worked in the company for at least 3 years4. those who have dependents those who have been insured under the plan for at least 5 years
what is the purpose of key person insurance?1. to insure retirement benefits are available to all key employees2. to maintain an account that insures the owner of a company remains solvent3. to lessen the risk of financial loss because o the death of a key employee4. to provide health insurance to the families of key employees to lessen the risk of financial loss because o the death of a key employee
an insured has a modified endowment contract. he wants to withdraw some money in order to pay medical bills. which of the following is true?1. he will not have to pay a penalty, regardless of age2. he cannot withdraw money from his MEC before age 59 1/23. he will have to pay a penalty if he is younger than 59 1/24. he will have to pay a penalty regardless of his age he will have to pay a penalty if he is younger than 59 1/2
which of the following statements concerning buy-sell agreements true?1. buy-sell agreements pay in the event of a medical emergency2. buy-sell agreements are normally funded with life insurance policy3. premiums paid are deductible as a business expense4. benefits received are consider income taxable buy-sell agreements are normally funded with life insurance policy
in a direct rollover, how is the money transferred from one plan to the new one?1. from the original plan to the original custodian2. from trustee to trustee3. from trustee to the participant4. from participant to the new plan from trustee to trustee
which of the following is NOT an example of a business use of life insurance?1. buy-sell funding2. executive bonuses3. key person4. worker’s compensation worker’s compensation
who is the owner and who is the beneficiary on a key person life insurance policy?1. the key employee is the owner and the employer is the beneficiary2. the employer is the owner and beneficiary 3. the employer is the owner and the key employee is the beneficiary4. the key employee is the owner and beneficiary the employer is the owner and beneficiary
all of the following are true of key person insurance EXCEPT1. the key employee is the insured2. the plan is funded by permanent insurance only3. there is no limitation on the number of key employee plans in force at nay one time4. the employer is the owner, payor and beneficiary of the policy the plan is funded by permanent insurance only
all of the following are requirements of eligibility for social security disability income benefits EXCEPT1. fully insured status2. waiting period of 5 months3. being age 654. inability to perform any gainful work being age 65
which of the following best defines the “owner” as it pertains to life settlement contracts?1. fiduciary for the contract2. insurance provider3. policyowner of the life insurance policy4. financial entity tat sponsors the transaction policyowner of the life insurance policy
all of the following statements are true regarding tax-qualified annuities EXCEPT1. tax accumulation is deferred2. they must be approved by the IRS3. withdraws are taxed4. employer contributions are no tax deductible employer contributions are not tax deductible
a corporation is the owner and beneficiary of the key person life policy. if the corporation collects the policy benefit, then1. the benefit is received tax free2. the benefit is subject to the exclusionary rule3. IRS has no jurisdiction4. the benefit is received as taxable income the benefit is received tax free
which of the following is NOT true of life settlements?1. seller must be terminally ill2. could be used for a key person coverage3. could be sold for an amount greater than the current cash value4. involve insurance policies with large face amounts seller must be terminally ill
for a retirement plan to be qualified, it must be designed for the benefit of1. key employee2. employer3. IRS4. employees employees
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 policyowner?1. a buy-sell agreement2. family term rider3. third-party ownership4. an irrevocable beneficiary third-party ownership
all of the following would be eligible to establish a keogh retirement plan EXCEPT1. the president and employee of a family corporation2. a sole proprietor of a service station who employs four employees3. a sole proprietor of a film development store with no employees4. a hair dresser who operates her business at her house the president and employee of a family corporation
employer contributions made to qualified plan1. may discriminate in favor of highly paid employee2. are after-tax contributions3. are taxed annually as salary4. are subject to vesting requirements are subject to vesting requirements
if an immediate annuity is purchased with the face amount at death or with cash value at surrender, this would be considered a1. nonforfeiture option2. rollover3. settlement option4. nontaxable exchange settlement option
an insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. the insured knows that his financial state will worsen even more with the upcoming medical expenses. what option could the insured utilize?1. estate liquidation2. nonpayment of premium3. change of beneficiary4. viatical settlement viatical settlement
all of the following are characteristic of group life insurance EXCEPT1. amount of coverage is determined according to nondiscriminatory rules2. individuals covered under the policy receive a certificate of insurance3. certificate holders may convert coverage to an individual policy without evidence of insurability4. premiums are determined by the age, sex, and occupation of each individual certificate holder premiums are determined by the age, sex, and occupation of each individual certificate holder
what is the main purpose of the seven-pay test?1. it guarantees interest minimum2. it determines if the insurance policy is an MEC3. it requires level premium payments for 7 years4. it ensures that the policy benefits are paid out in 7 years it determines if the insurance policy is an MEC
what is the official name for the social security program?1. old age survivors disability insurance2. social insurance program3. defined benefit retirement insurance4. qualified pension plan old age survivors disability insurance
who can make a fully deductible contribution to a traditional IRA?1. a person whose contributions are funded by a return on investment2. an individual not covered by an employer-sponsored plan who has earned income3. anybody: all IRA contributions are fully deductible regardless of income level4. someone making contributions to an educational IRA an individual not covered by an employer-sponsored plan who has earned income
all of the following are general requirements of a qualified plan EXCEPT1. plan must be permanent, written and legally binding2. plan must provide an offset for social security benefits3. plan must be communicated to all employees4. plan must be for the exclusive benefits of the employees and their beneficiaries plan must provide an offset for social security benefits
which of the following is TRUE of a qualified plan?1. has a tax benefit for both employer and employee2. does not need to have a vesting schedule3. may discriminate in favor of highly paid employees4. may allow unlimited contributions has a tax benefit for both employer and employee
a 403(b) plan, commonly referred to as a TSA, is available to be used by1. postal employees2. self-employed persons3. teachers and not-for-profit organizations4. government workers teachers and not-for-profit organizations
if a life insurance policy develops cash value faster than a seven-pay whole life contract, it is 1. multiplicative policy2. modified endowment contract3. accelerated policy4. endowment modified endowment contract

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