Life test 3 answers

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Life 3 Score: 57% You answered 39 out of 68 questions correctly. You appear to have some knowledge of the material. Keep trying. Click here to return to your Classroom 1. The policyowner has how many days, after the maturity date, to exercise an annuity option before the rule of construtive receipt takes effect? Correct Answer: 60 days Explanation: When a policy endows, or matures, it is time to take the money. Taking the money over a period of time (annuitizing) could be a good tax strategy, as opposed to taking the money in a lump sum. Concept: None No further information available. 2. Correct! 3. Correct! 4. Correct! 5. Which of the following premium factors have the greatest effect on rate making? Correct Answer: mortality Explanation: The interest and expense factors will generally be the same for all of the company's insureds, but the mortality factor will be different for each insured. Concept: None No further information available. 6. Avril was given a binding receipt for a $50,000 life insurance policy which required an exam. Two weeks later he was killed in an accident before the exam could be completed. Which of the following would the company do? Correct Answer: Pay the full death benefit Explanation: Even though the exam was not completed, and technically full consideration was not given, the company is bound to pay if death occurs ACCIDENTALLY with-in 30 days of a binding receipt. Do not confuse this with the conditional receipt. Page 175 last sentence Concept: None No further information available. 7. Correct! 8. Dude paid a total of $25,000 for his $100,000 life insurance policy. He borrows $35,000 against the cash value. How much will Dude have to report as a gain? Correct Answer: $0 Explanation: As long as the cash value remains inside the policy there will be no taxable event. It was a loan. How did the cash become so much higher than the amount he paid in? Interest. Concept: None No further information available. 9. Correct! 10. Correct! 11. Correct! 12. Correct! 13. Correct! 14. All of the following are exceptions to the "transfer for value" rule except: Correct Answer: transfers to a relative Explanation: The transfer for value rule states that if a policy is sold or assigned (absolute), the transferee (the person buying the policy) will be taxed according to the gain. Gain would be defined as anything over the cost basis. Cost basis includes the money paid for the policy plus any premiums paid by the transferee. Exceptions to the rule are the insured, a partner of the insured, or a corporation in which the insured is a shareholder or officer. Concept: None No further information available. 15. Correct! 16. Correct! 17. The rule of constructive receipt takes effect after: Correct Answer: 60 days Explanation: page 158-9 Concept: None No further information available. 18. Which of the following death benefit settlement options is true? Correct Answer: Benefits are tax free unless they are paid in installments. Explanation: If paid in a lump sum, the benefit is tax free unless there has been interest added to it. This happens if the death benefit has been left with the insurance company. Then, only the interest is taxable. Benefits paid out under the installment method will be taxed according to the annuity rule. "The amount invested divided by the expected return." So, the portion representing the death benefit is received tax free, the portion representing interest will be taxable. Concept: None No further information available. 19. In the formation of a life insurance contract, the special significance of a conditional receipt is that it: Correct Answer: is intended to provide coverage on a date earlier than the date of the issuance of the policy. Explanation: none Concept: None No further information available. 20. Correct! 21. A STANDARD RISK applicant is considered covered when: Correct Answer: the insurance company mails the policy (which had at least one month's premium submitted with the application) for delivery. Explanation: none Concept: None No further information available. 22. Correct! 23. Correct! 24. All of the following are automatically presumed to have an insurable interest in the insured except: Correct Answer: cousins Explanation: Concept: None No further information available. 25. Correct! 26. Correct! 27. Correct! 28. Correct! 29. Correct! 30. Correct! 31. Correct! 32. Correct! 33. Binding receipts: 1. are a maximum of $100,000 and not more than 30 days. 2. are a maximum of $100,000 and not more than 60 days. 3. are issued with no medical exam required. 4. will pay for accidental death within 30 days of the agreement, even if a required exam was not completed. Correct Answer: 2 & 4 Explanation: With a "binding" receipt, if death accidently occurs within 30 days of the agreement, even without an exam being completed the policy will pay the benefit. Concept: None No further information available. 34. Correct! 35. Correct! 36. Correct! 37. Which type of settlement option could possibly be paid out to the beneficiary completely tax free? Correct Answer: lump sum Explanation: A lump sum could be paid out tax free assuming that the proceeds were paid to the beneficiary in a hurry, so as not to have time to earn interest. If for some reason the company delayed the payout, they would have to pay interest on the proceeds. The interest would be taxable. As for the other options, the proceeds are paid out with interest. So the amount representing interest would be taxable. Concept: None No further information available. 38. Correct! 39. Correct! 40. When would the insurance company require a statement of the insured's good health? Correct Answer: At the delivery of the policy if no money was given with the application Explanation: If money was not given at the time of the application, the insurance company would require this statement. The insurance company has a right to know that the insured's health has not changed since he completed the application and the time he gave them money. Concept: None No further information available. 41. Correct! 42. Which beneficiary term would designate the children of a DECEASED named beneficiary as recipients of the death benefits? Correct Answer: Per Stirpes Explanation: none Concept: None No further information available. 43. Correct! 44. Correct! 45. Correct! 46. Correct! 47. Which of the following is not a settlement option? I. Life Income II. Fixed Period III. Fixed Rate IV. Interest Only Correct Answer: III Explanation: none Concept: None No further information available. 48. All of the following statements concerning viatical death benefits are true except: Correct Answer: To be classified as terminally ill the insured must have a condition that can reasonably result in death within one year. Explanation: Death must be reasonably expected within two years. Concept: None No further information available. 49. Preliminary term insurance can be used for how long? Correct Answer: 1 to 11 months Explanation: A doctor has an immediate need for $3,000,000 of permanent insurance but can not afford the premium as of yet. He needs to arrange the financing for the premium, but he needs the protection immediately. Preliminary term would allow him to be insured immediately and delay the issuance of the permanent policy as far as 11 months in the future. The permanent policy's premium would be based on his age at the time the permanent policy goes into effect. Concept: None No further information available. 50. Correct! 51. The process of evaluating risks standard or sub-standard is known as: Correct Answer: Underwriting Explanation: It is the process of underwriting. Rating is a process of underwriting, underwriting is not a process of rating. Ex. When an insurance company is evaluating a prospect they are making a determination whether to accept, reject, of RATE him or her. Rating is for sub-standard risks. Pg.165 Concept: None No further information available. 52. Where would the insurance company determine the character of a prospective insured? 1. The inspection report 2. Special questionnaires 3. The agent's report 4. Credit reports Correct Answer: 1 & 3 Explanation: The inspection report will be ordered by the insurance company after the application has been turned in. This information is also gathered from the agent's report. How accurate is that? Depends on the agent's character. Concept: None No further information available. 53. Which of the following is not true about life insurance policy proceeds? Correct Answer: They are not part of the insured's estate if payable to the estate Explanation: Concept: None No further information available. 54. Correct! 55. Correct! 56. Which of the following settlement options might provide payments that exceed the proceeds of the policy and the interest earned? Correct Answer: Life Annuity Explanation: This is really an annuity and will pay for life, no matter how long that life lasts. Concept: None No further information available. 57. What provision would allow the insurance company to pay the death benefit to someone not named as a beneficiary? Correct Answer: Facility of Payment Provision Explanation: The facility of payment is found in industrial policies and allows the insurance company to pay to someone not named as the beneficiary in certain circumstances. These might be when the named beneficiary is a minor, the named beneficiary is deceased, or when no claim was submitted with in a specified time. This is only for small policies. Concept: None No further information available. 58. Correct! 59. Allen, a cancer survivor, was rated by the insurance company to cover the additional risk. Which of the following rating methods would increase his cash value? Correct Answer: none of the above Explanation: The extra charge only covers the extra risk brought to the insurance company. It does not increase cash values or dividends. If the condition which caused the rating disappears, for whatever reason, then the insured may apply to have the rating removed. Concept: None No further information available. 60. All the below are available settlement options EXCEPT: Correct Answer: joint and first survivor Explanation: none Concept: None No further information available. 61. An agent takes an application from a proposed insured without receiving payment of the first premium. The insurance company issues the policy and, when the agent visits the proposed insured to deliver it, she realized that the health of the applicant has deteriorated significantly since the application was taken. The agent should: Correct Answer: refuse to deliver the policy or to accept any premium offered. Explanation: none Concept: None No further information available. 62. Correct! 63. Correct! 64. Correct! 65. Lucy has a $100,000 life insurance policy with $25,000 accumulated as cash value. If she were to borrow $20,000 from her policy how much cash value would be in her policy the next day? Correct Answer: $25,000 Explanation: The cash value is not borrowed from the policy, it is borrowed against it. Instead, the policy's cash value is used as collateral. The money is coming from the company's general account. They are not lending you your own money. Concept: None No further information available. 66. John owned a life insurance policy on his sister. His sister's children were named as the beneficiaries. If his sister and her children were killed in an accident, to whom would the insurance company pay the benefits? Correct Answer: John Explanation: If all named beneficiaries are deceased at the time of insured's death the proceeds will be paid to the owner or the owner's estate. Concept: None No further information available. 67. Where would information relating to the identity of the agent, the company, the policy and each rider be found? Correct Answer: policy summary Explanation: The policy summary and the buyer's guide are usually given to the prospect before the taking of the premium. The buyer's guide is a generic publication that explains insurance in a way that the average consumer can understand. Concept: None No further information available. 68. Clockster surrenders his $25,000 life insurance policy with $10,000 of cash value. He has paid a total of $5,000 in premiums. He had received $2,000 of dividends of which he bought $7,000 of paid-up insurance. How much will Clockster have to report to the IRS as a gain? Correct Answer: $7000 Explanation: The dividends are a return of the premium and must be subtracted from the premiums paid to arrive at the cost basis. $10,000(amount received)-($5,000-$2,000)= $7,000 Concept: None No further information available.

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