Question 1

What must be considered with completing a needs analysis for a family saving for a child's tuition?&#10;A)Where the child will go to college&#10;B)Where the family lives&#10;C)What year the child was born&#10;D)The age the child will attend college

Accepted Answer

When completing a needs analysis for a family saving for a child's tuition the age the child will attend college must be included. In addition to what age the child will attend college, the parents' after-tax earnings rate, the inflation adjusted interest rate, the current cost of tuition, and the rate of tuition increase must also be evaluated.

Question 2

What term is also known as education IRAs?&#10;A)Pell Grant&#10;B)CollegeSure CD&#10;C)Financial Aid&#10;D)Coverdell Education Savings Accounts

Accepted Answer

Coverdell Education Savings Accounts is also known as education IRA's. If beneficiary does not attend college, the beneficiary can be changed to a member of the beneficiary's family if under the age of 30. This type of savings plan is used for undergraduate and graduate-level expenses. Parent or guardian establishes the account and can elect to maintain control over the account for education purposes. Any withdrawals from the Coverdell are paid to the beneficiary and are not refunded to the parent or other person who establishes the account.

Question 3

What type of education funding is only for the first two years of undergraduate education?&#10;A)Hope Credit&#10;B)Lifetime Learning Credit&#10;C)Education Learning Credit&#10;D)Hope learning Credit

Accepted Answer

Hope Credit education funding is only for the first two years of undergraduate education. Qualified expenses include tuition; books and supplies qualify as tuition if the fees must be paid to the institution as a condition of enrollment. Room and board, and books and supplies are not qualified. The amount of credit is 100 percent of the first $1,200 for qualified tuition you paid for each eligible student and 50 percent of the next $1,200. The maximum amount is $1,800 times the number of eligible students.

Question 4

What educational savings plan vehicle is a gift to a child without the expense of a trust?&#10;A)Uniform Transfers to Minors Act&#10;B)CollegeSure CD&#10;C)Financial Aid&#10;D)Coverdell Education Savings Accounts

Accepted Answer

The Uniform Transfers to Minors Act is an educational savings plan vehicle that is a gift to a child without the expense of a trust. Parents transfer assets to children to reduce the income taxes on their earnings. Money transferred to a custodial account is considered an irrevocable gift. Once the child reaches the age stipulated by law, usually 18 or 21 years of age, the money is the child's to use as they please. The child is not required to attend college for the funds.

Question 5

What type of education funding is available for all years of undergraduate and graduate work?&#10;A)Hope Credit&#10;B)Lifetime Learning Credit&#10;C)Education Learning Credit&#10;D)Hope learning Credit

Accepted Answer

The Lifetime Learning Credit is available for all years of undergraduate and graduate work. Qualified expenses include tuition; books and supplies qualify as tuition if the fees must be paid to the institution as a condition of enrollment. Room and board and books and supplies do not qualify as expenses. The amount of the credit is 20 percent of the first $10,000 of qualified tuition paid for all eligible students. The maximum amount per family is $2,000.

Question 6

How much money may be deducted as interest on qualified education loans?&#10;A)$1,500&#10;B)$2,500&#10;C)$3,500&#10;D)$4,500

Accepted Answer

Interest on qualified education loans can be deducted up to $2,500. The deduction phases out when modified adjusted gross income exceeds certain limits. Voluntary payments of interest are also deductible. Deductible amounts must be reduced by any non-taxable education benefits received, such as employer-provided assistance and non-taxable distribution from a Coverdell education savings account. This deduction cannot be claimed in a; year in which a Hope Credit or Lifetime Learning Credit has been claimed for the same student.

Question 7

As a funding strategy, what allows for a child to receive annual gift tax exclusion?&#10;A)Section 2053(c) Minor's Trust&#10;B)Section 6 (a) Parental Tax Exception&#10;C)Section 2053 (c) Adult Trust&#10;D)Section 5 - 3 Child Trust

Accepted Answer

As a funding strategy, Section 2053 (c) Minor's Trust allows a child to receive annual gift tax exclusion. This is a transferred trust property to be treated as a gift of a present interest to the child and so qualifies for the annual gift tax exclusion. The trust is used when 1) the granter's income tax bracket is high and the recipient's tax bracket is low and 2) the granter does not want an appreciating asset included in the gross estate. If income of the trust is distributed each year, it is taxable to the recipient. If income is accumulated, it is taxed to the trust. All of the trust property and accumulated income must be payable to the child when he or she reaches age 21.

Question 8

Which client would have the highest risk exposure?&#10;A)Miriam is a 40-year-old single client. She has no dependents and rents her apartment. Her annual income is $155,000. She has saved enough money to retire in the next two years.&#10;B)Andrea is a 50-year-old married client. She and her husband have two children and rent their apartment. Andrea's annual income is $40,000. Her husband earns $150,000 per year, and they put most of Andrea's income in savings.&#10;C)Mark is a 30-year-old single client. He has no dependents and rents his apartment. His annual income is $78,000. He has some savings. He is a self-employed lawyer.&#10;D)Stephen is a 35-year-old married client. He and his wife have one child and rent their apartment. Stephen's annual income is $80,000. His wife also earns $80,000 per year, and they put half of their earnings in savings. Stephen is a doctor employed by a practice that pays his medical liability insurance.

Accepted Answer

There are many risk exposures to consider, including whether a client depends on earned income, whether loss of earnings from premature death would be relevant, whether the client owns a property, operates a motor vehicle, or works in a high liability profession. Miriam does not have any dependents and has enough savings that loss of income would not be a high risk to her financial stability. Andrea and Stephen have similar circumstances in that a loss of their income would not put a large financial burden on either them or dependents. While Mark and Stephen are both in high liability professions, Stephen's medical liability insurance is covered, so Mark has the highest risk exposure.

Question 9

In which case should a client consider having some type of insurance policy?&#10;A)A single mother who does not have substantial savings&#10;B)A homeowner who lives in a flood area&#10;C)An automobile owner who has a loan on his or her vehicle&#10;D)All of the above

Accepted Answer

All of these should consider an insurance policy. The single mother should consider insurance for loss of earnings, either through disability or death, so that her dependents can be supported. All homeowners and automobile owners should consider obtaining insurance policies on their property.

Question 10

Which type of insurance plan is available to individuals over age 65?&#10;A)Group plan coverage&#10;B)COBRA&#10;C)Medicare&#10;D)Medicaid

Accepted Answer

The government offers a health insurance program to individuals over the age of 65. Taxpayers pay into this program through employee withholding while they are working, and one of the Medicare plans is available to individuals who are eligible to receive Social Security.

Question 11

How many of today's 20-year-olds are estimated to become disabled before they retire?&#10;A)1 in 50&#10;B)1 in 10&#10;C)1 in 8&#10;D)1 in 4

Accepted Answer

The answer of How many of today's 20-year-olds are estimated...

Question 12

Which of the following is a disability program run by the Federal government?&#10;A)STD&#10;B)LTD&#10;C)DI&#10;D)SSDI

Accepted Answer

The answer of Which of the following is a disability...

Deck 7: Risk Management and Insurance Planning