Unit 14 Flashcards
Which of the following statements regarding ways to determine the proper amount of life insurance is CORRECT?
(A) The most popular method today for determining the proper amount of life insurance is the human life value approach.
(B) When using the needs approach to determine the proper amount of life insurance to purchase non-insurance-type assets, such as pension benefits or personal savings, are not factors in the calculation.
(C) The needs approach considers only the most immediate financial concerns, without regard for family financial goals such as college education for children or retirement income for a surviving spouse.
(D) There are two basic approaches to determining the amount of life insurance that is needed: the human life value approach and the needs approach
(D) There are two basic approaches to determining the amount of life insurance that is needed: the human life value approach and the needs approach
All of the following statements regarding survivor financial needs are correct EXCEPT:
(A) the term dependency period refers to the 20-year period immediately following the insured’s death during which the widowed spouse must depend on Social Security
(B) the period for which there are no Social Security benefits for the surviving spouse is known as the blackout period
(C) a final expense fund addresses a deceased breadwinner’s last illness and funeral costs, death taxes, outstanding debts, and more
(D) a housing fund addresses a family’s rental or home mortgage needs
(A) the term dependency period refers to the 20-year period immediately following the insured’s death during which the widowed spouse must depend on Social Security
Three business partners individually agree to acquire the interest of a deceased partner and own life insurance on each of the other partners in the amount of his or her share of the business’s buyout value. What is described here is:
(A) an entity buy-sell plan
(B) a stock redemption buy-sell plan
(C) a cross-purchase buy-sell plan
(D) a 401(k) plan
(C) a cross-purchase buy-sell plan
Which of the following statements regarding key-person insurance is NOT correct?
(A) Key-person life insurance indemnifies a business for financial loss caused by the death of a key employee or key executive.
(B) The business may borrow from the cash value of a permanent key-person life insurance policy.
(C) The policy’s death proceeds received by the business are not taxable.
(D) Premiums for a key-person life insurance policy are a tax-deductible expense to the business.
(D) Premiums for a key-person life insurance policy are a tax-deductible expense to the business.
Which of the following statements regarding deferred compensation plans is CORRECT?
(A) A deferred compensation plan must always be designed as a qualified plan.
(B) Life insurance is not a permissible funding vehicle, but annuities are.
(C) They permit a business to provide extra benefits to officers, executives, and other highly paid employees.
(D) A deferred compensation plan must be made available to all employees who are at least 21 years old and have 1 year of service to the business.
(C) They permit a business to provide extra benefits to officers, executives, and other highly paid employees.
With 3 partners in a business, how many life insurance policies would be required to insure a cross-purchase buy-sell plan?
(A) 3
(B) 6
(C) 9
(D) 12
(B) 6
Robert and his employer agree on the purchase of a split-dollar life insurance policy and the usual split-dollar approach to premium payments. Each year, the employer will contribute to the premium an amount equal to:
(A) one-half the premium
(B) the annual dividend
(C) the increase in the policy’s cash value
(D) two-thirds of the premium
(C) the increase in the policy’s cash value
Roland is 45 years old and married. He has a son, age 19, a freshman at a local university and a daughter, age 8. Decreasing term insurance could be recommended for Roland in order to accomplish which of the following reasons?
(A) Supplement retirement income
(B) Guarantee a college education for the son
(C) Provide payment protection
(D) Provide a college education fund for the daughter
(B) Guarantee a college education for the son
A partnership owns, pays for, and is the beneficiary of the life insurance policies on the lives of its individual partners. This is known as:
(A) an entity buy-sell plan
(B) a stock redemption plan
(C) a cross purchase plan
(D) a Keogh plan
(A) an entity buy-sell plan
Which of the following statements about key-person insurance is CORRECT?
(A) The key employee’s family is the beneficiary of the policy.
(B) The death proceeds are taxable.
(C) The business may take a tax deduction for premiums paid.
(D) Because the business has complete control over the policy, it can be considered a business asset.
(D) Because the business has complete control over the policy, it can be considered a business asset.
