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The factor that has had the greatest influence on the growth of employee benefits has been
the favorable tax treatment.
the fact that coverage is on a group basis and is therefore less expensive.
employer efforts to improve employee morale.
union negotiation for benefits.
In evaluating universal life policies, the factors that should be considered in judging costs include
the expense loadings charged by the insurer.
the insurer’s projected advertising costs based on current market share.
fees associated with state-mandated benefits.
the total cost paid out in insurance claims over the last twelve months.
Life insurance which provides for payment only if the insured dies within a specific time period is
whole life insurance.
limited pay life insurance.
ordinary life insurance.
In purchasing life insurance, the first decision that should be addressed is
the minimum interest-adjusted cost that will be considered.
the company from which life insurance should be purchased.
whether to buy term insurance or cash value insurance.
how much life insurance is needed.
The normal length of the suicide exclusion in life insurance policies is
five years from date of issue.
two years from date of issue.
six months from the date of issue.
one month from the date of issue.
The least impressive feature cited in support of life insurance as an investment is
the compulsion it entails.
the favorable tax treatment.
the safety of principal.
you don’t have to die to collect.
Group insurance is a less expensive form of protection than individual policies because
commissions to agents are lower.
the insurance company performs certain administrative functions on behalf of the employer.
commissions to agents are higher.
mortality experience has been better under individual policies.
Assuming the same face amount and age at issue, which of the following would have the highest cash value at the end of 10 years?
20 pay life policy
Decreasing term insurance is most suited to meeting which of the following needs?
Group life insurance premiums paid by an employer are deductible by the employer and nontaxable to the employee
when included as a part of a pension plan.
for up to $50,000 in group permanent life insurance.
up to 10% of the employee’s salary.
for up to $50,000 in term life insurance.
Mr. Jones dies leaving a $100,000 life insurance policy to his wife. The wife elects to take the $100,000 over a ten year period and receives $11,130 per year. What part of this payment is taxable as income to the wife?
Only the $100,000, which may be spread over the ten year period during which it is received
None of it
$1,130 per year
$11,130 per year
Life insurance contracts receive favorable tax treatment in that
although proceeds to a beneficiary are usually taxable as income, it is at a reduced rate.
in computing taxable gain, the insured may deduct all premiums paid, including the element that paid for protection.
the investment earnings on the cash value of insurance policies are not considered a taxable gain.
the investment earnings on the cash value are only taxed during the period of accumulation.
A misstatement of age by an applicant for life insurance
has no effect on the policy unless it is discovered during the contestability period.
makes the policy voidable at the option of the company if discovered during the contestability period.
voids the policy if discovered during the contestability period.
changes the amount of insurance to the amount that the premium paid would have purchased at the correct age.
The grace period clause
provides that any premium in default will be paid out of the existing cash values.
is designed to avoid unintentional lapses.
must be taken out by the insured at the time the policy is taken out or it is not applicable.
permits the insured to purchase insurance which he or she could not otherwise afford.
The specific requirements regarding evidence of insurability imposed on the insured under the reinstatement clause are
necessary to prevent adverse selection.
intended to avoid a loss of investment income.
required by the changing investment income over time.
designed to offset the cost of reissuing the policy.
Whole life insurance
may not be purchased under several premium paying options.
develops cash values which may not be used for retirement.
guarantees protection of the insured for a specified period.
may be purchased under several premium paying options.
The three primary elements in life insurance ratemaking are
mortality, loading, and expenses.
mortality, expenses, and profits.
interest, mortality, and loading.
costs, profits and taxes.
Assuming the same face amounts and issue at age 35, which of the following would have the highest premium?
A paid-up at age 65 whole life policy
A 30 pay life policy
A 20 pay life policy
A whole life policy
Under the grace period clause used in life insurance
the policy is continued for 30 days under the extended term option.
any premium in default will be deducted from the face amount of the policy if the insured should die during the period.
any premium in default will be waived if the insured should die during the period.
the policy is continued for 60 days after a premium due is in default.
A policy is described as mature when
when the premium payment period has ended.
when the cash value equals the net single premium for the insured at his attained age.
all premiums due have been paid.
when the face amount is payable to the insured.
The cash value in a whole life insurance policy
lowers because the premium paid in the early years is less than the cost of protection.
raises or lowers depending on its fair market value at the end of the policy period.
increases until it meets the face of the contract at the end of the policy period.
is similar in value as compared to a term insurance policy.
To reinstate a policy that has lapsed, the insured must:
provide tax returns for the past five years for review.
make one lump-sum payment to pay the entire balance owing in full.
pay or reinstate any indebtedness under the policy.
pay a $500 non-refundable reinstatement fee.
Mr. Jones purchased a $50,000 whole life policy with double indemnity on May 1, 2000. On May 25, 2002, he committed suicide. The insurer will be required to pay
the company will not be required to pay anything.
only the premiums which Jones has paid to the company.
The rate of return on the investment element in cash value life insurance policies
is typically the same among life insurance companies.
varies widely among life insurance companies.
is readily apparent and relatively easy for the layperson to compute.
is guaranteed in the policy to always be a positive return.
The most logical classification of the types of life insurance contracts is between
those that meet Internal Revenue Code requirements and those that do not.
those that receive favorable tax treatment and those that do not.
those that insure a single life and those that insure multiple lives.
those that offer pure protection and those that combine protection and savings.