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Insurance Sales Exam > Chapter 3: Life Premiums, Group Life, and Retirement > Flashcards

Chapter 3: Life Premiums, Group Life, and Retirement Flashcards

1
Q

three factors affecting life insurance rates/premiums?

A

Mortality
Interest earnings
Expenses

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2
Q

Age,
Sex,
Health,
Occupation,
Hobbies, and
Habits.

A
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3
Q

Other factors affecting premiums?

A

Age,
Sex,
Health,
Occupation,
Hobbies, and
Habits.

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4
Q

Mathematicians who collect and analyze risk data?

A

Actuaries

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5
Q

What are used to show life expectancy at any age, and are used to establish the death rate for groups of people over a certain number of years?

A

CSO Tables (2001 Commissioners Standard Ordinary Tables)

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6
Q

Insurers’ expenses?

A

Loading

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7
Q

Higher interest earned on invested premiums = ________ premium payments

A

Lower

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8
Q

What are the 4 components of loading?

A

Acquisition costs: cost of effectuating insurance policies, of which a producer’s first year commission makes up the greatest portion
Overhead: insurer’s salaried staff, rent, and furniture
Contingency funds: additional premium may be required if original premium is insufficient - only some insurers (i.e., assessment mutuals) have the right to charge additional premium
Immediate claims payments: insurers assume that all claims are paid at the end of the year when establishing rates, when in reality claims are paid all year

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9
Q

What premium factor are an agents commissions?

A

Expense

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10
Q

Which of the following is NOT a major risk factor in determining a premium? A.) Mortality B.) Interest C.) Expense D.) Age/Sex.

A

correct answer is D.) Age/Sex. They want to trick you with the Age/Sex answer. They seem like major factors, but remember they are not the major factors. The major factors are MIX (Mortality/Interest/Expenses). The mortality factor takes the persons age and sex into consideration so they are not major risk factors.

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11
Q

What is Net Single Premium?

A

= Mortality - Interest

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12
Q

What is Gross Annual Premium?

A

= Mortality - Interest + Expenses (Follow normal Order of Operations)

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13
Q

Level Premium Life Insurance Policies?

A

Amount of premium is constant throughout entire policy

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14
Q

Level Premium Life Insurance Policies?

A

Amount of premium is constant throughout entire policy
Higher premiums throughout entire policy term to account for increased risk in later years

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15
Q

____ _____ is the savings portion of a whole life policy.

A

Cash Value

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16
Q

T: Insurance companies treat reserves as a liability, not an asset because reserves are funds the insurance company must set aside to pay future claims

A

True

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17
Q

The frequency that premium payments are made?

A

Premium Payment Mode

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18
Q

TF: Premiums are paid with post tax dollars

A

True

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19
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

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20
Q

TF: Premiums used for a charity are tax deductible

A

True

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21
Q

TF: Life insurance premiums paid by an ex-spouse as court-ordered alimony are tax-deductible.

A

True

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22
Q

TF: Employer-paid premiums used to fund group life insurance for the benefit of employees are tax-deductible.

A

True

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23
Q

TF: For businesses, group life premiums paid by the employer are not tax deductible

A

False

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24
Q

Which of the following statements correctly describes net single premium?

Select one:
a. Net single premium is mortality minus interest
b. Net single premium is loading.
c. Net single premium is loading and interest.
d. Net single premium is the same as gross single premium.

A

A

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25
Q

The frequency that premium payments are made?

A

Premium Payment Mode

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26
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

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27
Q

Insurance companies need to set aside a certain amount of funds called reserves. Reserves are treated as a(n):
Select one:
a. Liability
b. Benefit
c. Premium
d. Asset

A

A

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28
Q

Which factor is the most crucial for underwriting life insurance?
Select one:
a. Proposed insured’s age
b. Proposed insured’s sex
c. Proposed insured’s place of residence
d. Proposed insured’s occupation

A

A

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29
Q

Generally, premiums paid on business life insurance policies are:
Select one:
a. Tax-deductible
b. Paid with pre-tax dollars
c. Not tax-deductible
d. Refunded to policyowners each year

A

C

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30
Q

All of the following statements are true regarding the premium payment mode, EXCEPT:
Select one:
a. If premiums are paid more frequently, the insurer incurs an additional loading expense.
b. More frequent premium payments means lower premiums.
c. Insurers accept premium payments annually, semi-annually, quarterly, monthly and weekly. Some insurers may accept a single lump-sum premium payment. This applies to life insurance.
d. The premium payment mode is the frequency that premium payments are made.

A

B

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31
Q

Insurers’ expenses include all of the following costs, EXCEPT:
Select one:
a. Overhead
b. Acquisition costs
c. Immediate claims payments
d. Premiums

A

D

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32
Q

Which of the following are the actuarial tables used by insurers for underwriting?
Select one:
a. Morbidity tables
b. C.S.O. tables
c. Insurable tables
d. Risk pool tables

A

B

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33
Q

Premiums are invested to earn interest. __________ interest rates allow insurers to charge ________ premiums.
Select one:
a. Lower; lower
b. Higher; higher
c. Higher; lower
d. Fixed; monthly

A

C

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34
Q

Judas and John are identical twins. Judas and John go to the same insurance agent and end up buying the exact same policy. The only difference between their policies is: John pays his premiums monthly and Judas pays his premiums annually. Whose policy has higher premiums?
Select one:
a. Judas
b. John
c. Judas’ and John’s premiums are the same
d. Not enough information is provided

A

B

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35
Q

TF: For group life insurance, each member in the group is a party to the contract

A

False, only the insurer and group entity

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36
Q

TF: it is easier to qualify for a group policy vs an individual one

A

True

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37
Q

TF: Group life insurance members usually have to provide evidence of insurability

A

false

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38
Q

If the employer pays 100% of the cost of the group life insurance plan, it is considered?

A

Non-contributory - 100% participation required

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39
Q

If there is 75%+ participation and the employer and group members share the cost of a group life plan, it is called?

A

Contributory

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40
Q

TF: Insurers of group life policies must include a conversion option permitting the member to convert group life coverage to an individual policy upon the insured’s employment termination, removal of a class of insureds, or when the master contract is terminated.

A

True

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41
Q

Three factors about conversion of group policy to individual policy?

A

Evidence of insurability cannot be required upon conversion.
The individual whole life premiums will be determined based upon the insured’s attained age, and the face amount will be the same as was provided under the group policy.
The premium is likely to be higher.

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42
Q

What is the conversion period of time for converting from group to individual policy?

A

31 days after termination from group coverage

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43
Q

What is conversion period maximum length of time?

A

60 days (15 day extension if the individual is not made aware)

44
Q

TF: If the individual dies during the conversion period, the full death benefit will be paid by the insurer, regardless of whether the application for individual coverage was submitted.

A

True

45
Q

If the master policy is terminated, each individual member who has been insured under the group contract for at least ____ years is permitted to convert the group coverage to individual whole life coverage.

A

5

46
Q

TF: The converted coverage will have a face value at least equivalent to that provided under the group policy, less the amount of any new coverage purchased during the conversion period, or $10,000, whichever is less.

A

True

47
Q

If a group policy requires members to be active within the group, then those who become totally disabled will be allowed to continue their group coverage for a maximum of ______ months after the onset of the total disability.

A

Six months - disabled insured must pay the premiums and the premium amount cannot be changed

48
Q

What type of group plan requires 100% participation?

Select one:
a. Consideration
b. Contributory
c. Noncontributory
d. Contributing

A

C

49
Q

Conversion from a group policy to an individual policy must be made within a maximum of how many days of termination from the group coverage?
Select one:
a. 15
b. 30
c. 45
d. 60

A

D

50
Q

What type of group plan requires 75% participation?

Select one:
a. Contributing
b. Noncontributory
c. Consideration
d. Contributory

A

D

51
Q

Tim’s Toy Shop has gone bankrupt and needs to terminate all employees. Tim informs all employees of their right of conversion under the employer-sponsored group life plan. How many days are Tim’s employees allotted to convert their group life coverage to individual coverage?
Select one:
a. 10 days
b. 15 days
c. 31 days
d. 60 days

A

C

52
Q

Which of the following statements is false regarding the conversion option for group life insurance policies?
Select one:
a. Converted coverage may be term or whole life, depending on the needs of the insured.
b. The insured must receive a notice of their right to convert.
c. The face amount of the converted coverage may be no more than that under the group coverage.
d. Coverage during the conversion period is provided by the group policy.

A

A

53
Q

Jacob has been insured under his employer-sponsored group life insurance plan for seven years. He becomes totally disabled upon termination of his group coverage. Which of the following is true?
Select one:
a. Jacob has 10 days to convert his policy after the date of termination from group coverage.
b. Jacob has 20 days to convert his policy after the date of termination from group coverage.
c. Jacob may only continue his coverage through OBRA.
d. Jacob must be permitted to continue group coverage for six months.

A

D

54
Q

Serena dies 15 days after her group life insurance coverage is terminated. She did not apply for individual coverage. Which of the following is true?
Select one:
a. Serena’s beneficiary will receive 50% of the death benefit.
b. Serena’s beneficiary will receive the full death benefit.
c. Serena’s beneficiary will receive the death benefit minus the initial premium for the converted coverage.
d. Serena’s beneficiary will not receive the death benefit because Serena’s group coverage was terminated.

A

B

55
Q

The frequency that premium payments are made?

A

Premium Payment Mode

56
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

56
Q

TF: One non-tax advantage to retirement plans for employees, but not employers, is forced savings.

A

True

57
Q

Two types of retirement plans?

A

Qualified and Nonqualified

58
Q

_________ retirement plans offer special tax benefits meeting IRS standards

A

Qualified

59
Q

________ retirement plans do not meet federal government’s requirements to receive special tax benefits

A

Nonqualified

60
Q

Qualified retirement plans:
Employers contributions are ____-_______ as a biz expense
Employee contributions are made with ______ dollars - contributions are not taxed until withdrawn
INterest earned is ___-______ until withdrawn upon retirement

A

Tax Deductible
pre-tax
Tax Deductible

61
Q

Three common nonqualified retirement plans?

A

Split Dollar
Deferred Compensation
Executive Bonus

62
Q

Two advantages of non-qualified retirement plans:
Does not need to be __________________
Can _______ in favor of certain employees

A

approved by the IRS
Discriminate (offer to key employees only)

63
Q

One thing shared by both qualified and nonqualified retirement plans? Interest earned is ____-_______ until withdrawn upon retirement

A

tax-deferred

64
Q

What was instituted to enact minimum standards for pension plans and employee benefit plans?

A

Employee Retirement Income Security Act (ERISA)

65
Q

TF: On qualified retirement plans, only the interest earned is taxed upon withdrawal

A

false - contributions are made with pre-tax dollars, so both the principal AND interest are taxed

66
Q

TF: Tax-deferral is an advantageous benefit in retirement plans because plan participants are usually in a lower tax bracket upon retirement, so income tax from a qualified retirement plan is lower than if the contributions were made with taxed dollars.

A

True

67
Q

TF: if distributions from a qualified plan are made prior to the age of 59½, then a 10% penalty tax is imposed.

A

True

68
Q

TF: Distributions must begin by April 1 in the year after the plan participant reaches the age of 70½ or a nondeductible 50% penalty is assessed on the difference between the amount withdrawn and the required benefit amount.

A

True

69
Q

Mildred is age 58. She withdraws a sum of money from her qualified plan. What is the penalty?
Select one:
a. 2% penalty tax
b. 5% penalty tax
c. 10% penalty tax
d. 20% penalty tax

A

C

70
Q

Which of the following is not a characteristic of qualified plans?
Select one:
a. Plans cannot discriminate in favor of highly paid individuals.
b. Employee contributions are not tax-deductible.
c. Employer contributions are tax-deductible as a business expense.
d. Interest earned is tax-deferred.

A

B

71
Q

What happens if Becky takes her distributions from her qualified plan prior to age 59 1/2?
Select one:
a. A 10% penalty tax is assessed.
b. She loses her accrued interest.
c. Distributions cannot be made for one year.
d. The plan is cancelled and all cash accumulation in the plan is forfeited.

A

A

72
Q

All of the following are characteristics of qualified retirement plans, EXCEPT:
Select one:
a. There are two types of qualified plans.
b. Employer’s contributions are tax-deductible as a business expense.
c. Contributions are not taxed until withdrawn.
d. Employee contributions are made with pretax dollars.

A

A

73
Q

A nonqualified plan:
Select one:
a. Permits discrimination in favor of certain employees.
b. Does not have tax-deferred interest.
c. Must be approved by the IRS.
d. Has tax-deductible contributions.

A

A

74
Q

All of the following are characteristics of qualified retirement plans, EXCEPT:
Select one:
a. Contributions made by the employer are tax-deductible as a business expense.
b. Interest earned on the investment is tax-deferred until funds are withdrawn.
c. Contributions are not tax-deductible for the employee.
d. Plans are non-discriminatory.

A

C

75
Q

What are the two terms used to describe whether or not special federal tax benefits apply to retirement plans?
Select one:
a. Qualified; nonqualified
b. Advantaged; disadvantaged
c. Favorable; unfavorable
d. None of the above

A

A

76
Q

If Becky wants to take a distribution from her qualified retirement plan, she should know that distributions can be made:
Select one:
a. Only upon retirement.
b. Only after age 59 1/2
c. Only after age 70 1/2
d. At any time.

A

D

77
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

78
Q

The frequency that premium payments are made?

A

Premium Payment Mode

79
Q

The frequency that premium payments are made?

A

Premium Payment Mode

80
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

81
Q

The frequency that premium payments are made?

A

Premium Payment Mode

82
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

83
Q

The frequency that premium payments are made?

A

Premium Payment Mode

84
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

85
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

85
Q

The frequency that premium payments are made?

A

Premium Payment Mode

86
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

86
Q

The frequency that premium payments are made?

A

Premium Payment Mode

87
Q

The frequency that premium payments are made?

A

Premium Payment Mode

88
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

89
Q

The frequency that premium payments are made?

A

Premium Payment Mode

90
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

91
Q

The frequency that premium payments are made?

A

Premium Payment Mode

92
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

93
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

93
Q

The frequency that premium payments are made?

A

Premium Payment Mode

94
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

95
Q

The frequency that premium payments are made?

A

Premium Payment Mode

96
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

96
Q

The frequency that premium payments are made?

A

Premium Payment Mode

97
Q

The frequency that premium payments are made?

A

Premium Payment Mode

98
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

99
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

99
Q

The frequency that premium payments are made?

A

Premium Payment Mode

100
Q

The frequency that premium payments are made?

A

Premium Payment Mode

101
Q

TF: Annual premium mode is the most expensive, monthly premium mode is the least expensive

A

False

Insurance Sales Exam (44 decks)

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