test 3 2nd time taken 87%

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Life 3 Score: 86% You answered 59 out of 68 questions correctly. Your score is above average with this material. Click here to return to your Classroom 1. Correct! 2. The annuity rule applies to all of the following except: Correct Answer: lump sum Explanation: Under the annuity rule a fixed unchanging fraction of each payment is considered a return of principle and is not taxed. The balance of each payment would be taxable. The exclusion ratio is used to determine what is not taxed. It is the amount invested, divided by the expected return. If a $100,000 death benefit were to be paid out in installments of $10,000 per year for 15 years, then the ratio would be $100,000/$150,000 or 2/3 would excluded from taxes. Concept: None No further information available. 3. Correct! 4. Correct! 5. Correct! 6. Correct! 7. Correct! 8. Correct! 9. Correct! 10. Correct! 11. Correct! 12. Correct! 13. 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. 14. Correct! 15. Correct! 16. Correct! 17. Correct! 18. Correct! 19. Correct! 20. Correct! 21. Correct! 22. Correct! 23. Correct! 24. Correct! 25. Correct! 26. 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. 27. Correct! 28. Which of the following statements concerning cash values is/are true? 1. Cash values are a liability to the insurance company. 2. Cash values are an asset to the insurance company. 3. Cash values are an asset to the policyowner. 4. Cash values are a liability to the policyowner. Correct Answer: 3 Explanation: Cash values represent an asset to the policyowner, whether the policy is owned by a business or an individual. Reserves are treated as a liability on the insurance company's balance sheet. Concept: None No further information available. 29. Correct! 30. Correct! 31. Correct! 32. Correct! 33. Correct! 34. Correct! 35. Correct! 36. Correct! 37. Correct! 38. Correct! 39. Correct! 40. Correct! 41. Correct! 42. Correct! 43. Correct! 44. All the following issues about BENEFICIARIES are true EXCEPT: Correct Answer: Beneficiaries must always be named as individuals. Explanation: none Concept: None No further information available. 45. Correct! 46. Correct! 47. Where does the company get general character and reputation info on the proposed insured? Correct Answer: Inspection report Explanation: The M.I.B. is for medical information. This is shared between member companies only. It's purpose is to keep premiums down through the prevention of misrepresentation and fraud. The inspection report investigates the applicant's background. Concept: None No further information available. 48. Correct! 49. Correct! 50. Correct! 51. Correct! 52. Correct! 53. Correct! 54. Correct! 55. Correct! 56. Correct! 57. Correct! 58. Correct! 59. Correct! 60. "Under no circumstances are you to send me the money", Joe told his insurance company when he turned 65. Joe had an endowment policy for $50,000 that matured at age 65. He had paid in a total of $25,000 and did not want to pay the taxes quite yet desiring to delay the inevitable for as long as possible. "Too bad", said the IRS. "You're taxed." Under what rule was Joe taxed? Correct Answer: the rule of constructive receipt Explanation: The rule of constructive receipt says that if you could have taken the money but did not, you will be taxed as if you had. Concept: None No further information available. 61. Correct! 62. Correct! 63. Correct! 64. 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. 65. Correct! 66. Correct! 67. 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. 68. Correct!

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