Ch8 Practice Test Flashcards
Which of these statements is most accurate with respect to the life insurance needs of the typical family?
A. Total life insurance require requirements may decrease as an individual approaching retirement.
B. The need for Insurance to cover both final expenses and lost income decreases at age 70.
C. Life insurance allows families to reduce administrative cost and transfer taxes.
D. The need for life insurance remains steady until age 65.
A. Total life insurance require requirements may decrease as an individual approaching retirement.
Assume a client has $30,000 in a money market fund, $2000 in a checking account, a mortgage balance of $110,000 not to be paid off, as it will be transferred to the spouse, and auto loan of $20,000, and credit card balances of $5000. Assuming he died, final expenses would be $15,000. What would be the cash requirements for this client?
A. $8000.
B. $3000.
C. $118,000.
D. $10,000.
A. $8000.
An investment professionals assessing a life insurance needs of the Robinson family. Mr. Robinson has determined that the family is immediate cash flow requirements in the event of his death or $65,000. The amount needed to meet all future fun requirements instead of Mrs. Robinson’s income and Social Security and pension benefits is estimated to be $550,000. The family owns a home in which their equity interest is $200,000. Based upon these figures, the investment professional would recommend life insurance with a face amount of.
A. $550,000.
B. $485,000.
C. $415,000.
D. $615,000.
D. $615,000.
With regard to financial planning, many individuals and households overlooked the potential needs for
A. Disability income in long-term care insurance.
B. Retirement income, and auto expenses.
C. Life and health insurance.
D. Future education, expenses, and transfer taxes.
A. Disability income in long-term care insurance.
Mrs. Bartlett purchased a life insurance policy that will pay $100,000 to your beneficiary. Should she die at any time during the next year. The policy guarantees the right to renew every year for the next five years, and builds no cash value. Mrs. Bartlett has purchased a
A. Universal life policy.
B. Term life insurance policy.
C. Variable life insurance policy.
D. Whole life policy.
B. Term life insurance policy.
Which types of client would be identified as the best prospect for cash value life insurance?
A. Client to prefer a marketing approach.
B. Clients in low tax brackets.
C. Clients with small lump sum to invest.
D. Clients who prefer the discipline of regular periodic investments.
D. Client who preferred the discipline of regular, periodic investments.
With respect to cash value, life policies, what part of the policy value, if any, is subject to income taxation when the policy is surrendered?
A. The entire cash value less any dividends received.
B. The amount of the cash value that exceeds the investment in the contract.
C. The entire cash value.
D. The premiums paid less any outstanding policy loans.
B. The amount of the cash value that exceeds the investment in the contract.
Brenda Bradford is the owner of a whole life policy on her husband, Ralph. Their daughter, Vera, is named in the policy as the contingent beneficiary. In issuing the policy, the insurance company has asked a settlement option would be selected. Which one of the following individuals is currently empowered to make the selection?
A. The insurance company.
B. Brenda the policy owner.
C. Ralph, the person whose life is insured.
D. Vera, the contingent beneficiary.
B. Brenda, the policy owner.
Your client, Ann, age 50, receive a $300,000 inheritance from her parents estate. She would like to invest this money in a safe place, where it will grow in value until she takes early retirement at age 60. Which of these would be the most logical choice for Ann?
A. Immediate variable annuity.
B. Cash value life policy.
C. 10 year term life policy.
D. Single premium deferred annuity.
D. Single premium deferred annuity.
10 years ago, June, age 58, purchased a deferred annuity with a fixed rate of return of 4%. She believes that she could do better. She had a variable annuity with performance tied to the stock market. June has held onto this fixed rate annuity out of fear that surrendering it would trigger a taxable event and possible penalty. You should explain that she
A. Is correct about the penalty if she is under age 59, but she would pay no tax if she surrendered the policy.
B. Is correct and should hold the policy until maturity.
C. Can’t avoid the tax in the penalty by making a section 1035 exchange
D. Can avoid the tax in the penalty by doing a tax-free rollover to an IRA.
C. Can avoid the tax and the penalty by making a section 1035 exchange
if disability insurance premiums are paid with pre-tax dollars, any benefits, received would
A. Be subject to preferential capital gains rates.
B. Be subject to income tax
C. Be subject to an additional 10% penalty if the insured is under age 59.
D. Not be subject to income tax.
B. Be subject to income tax.
Universal life insurance gives the policy owner of the ability to adjust all of the following, except
A. Mortality rates
B. Death benefit
C. Premiums
D. Cash value
a. Mortality rates.
A beneficiary who was guaranteed payments for life with a minimum guarantee of 10 years of payments has selected which one of the following settlement options?
A. Installment over a fixed period.
B. Straight life income.
C. Life income with period certain
D. Installments of a fixed amount.
c. Life income with period certain
Which of the following classes of life insurance has a death benefit only, increasing premiums, temporary coverage, and expires at the end of a given period of time?
A. Whole life insurance.
B. Term life insurance.
C. Variable life insurance.
D. Universal life insurance.
B. Term life insurance.
Dividends received from a participating life insurance policy are
A. Used to reduce the basis in the policy.
B. Tax at preferential capital gains rates.
C. A return of unused premium payments.
D. Tax at ordinary income, tax rates.
D. Taxed at ordinary income, tax rates.
Assume that a client has the following needs and objectives when purchasing a life insurance policy:
- flexible, premium payments
- possibility of increasing death benefit
- Investment options
- Permanent protection
Which type of policies most suitable for this client?
A. Universal life.
B. Variable life.
C. Variable universal life.
D. Whole life.
A. Variable universal life.
A variable universal life policy combines the flexibility of universal life, with a possibility of an increasing death benefit, and a higher cash value than traditional fixed products
life insurance could be used to address all the following needs except
A. Care of aging parents.
B. Payment of the estate taxes.
C. Third-party ownership.
D. Replacement of a deceased spouses income.
C. Third-party ownership.
The amount of life insurance in individual needs is equal to the
A. Cash requirements needed to pay off debts and final expenses that arise due to the individuals death.
B. Funds needed to replace the income loss due to the death of the insured.
C. Total of the cash requirements needed to pay off debts and final expenses plus replace lost income.
D. Amount that would make the individuals family financially secure for life.
C. Total of the cash requirements needed to pay off debts and final expenses plus replace lost income.
Jim has selected to receive only the interest from his mother’s life insurance policy. When Jeff dies, his children will receive the lump sum benefit in addition to the benefit from his life insurance policy. Jim has selected the
A. Fixed amount option.
B. Life income option.
C. Fixed period option
D. Interest only option.
D. Interest only option.
In the early years of his or her business, a self-employed individual may be a good candidate for
A. Whole life insurance.
B. Universal life insurance.
C. Term life insurance.
D. Variable life insurance.
c. Term life insurance.
Generally, loans taken against the cash value of an enforced life insurance policy (not classified as a MEC) are
A. Taxed on the amount over the investment in the contract.
B. Taxed ordinary income
C. Not currently taxable.
D. Taxed capital gains.
c. Not currently taxable.
Michelle purchases an annuity that offers a guaranteed minimum interest rate and a guarantee against loss of principle if the contract is held to term. However, if the S&P 500 moves upward, Michelle’s annuity might end up accruing more than the guaranteed a minimum interest rate. Michelle has purchased
A. A market value adjusted annuity.
B. An equity index annuity.
C. A market value index annuity.
D. And equity adjusted annuity.
b. And equity index annuity.
An individual who owns in an annuity, has elected to receive income for life. After receiving payments for five months, she dies and payment cease, with no additional payments to beneficiaries. She elected, which annuity income option?
A. Straight life income option.
B. Life income with refund option.
C. Joint and survivor income option.
D. Life income with period certain option.
A. Straight life income option.
A section 1035 exchange is not permitted from
A. A cash value life insurance policy to an annuity.
B. A fixed annuity to a variable annuity.
C. A variable annuity to a fixed annuity
D. An annuity to a cash value life insurance policy.
D. And annuity to a cash value life insurance policy.
