Deck 15: Life Insurance and Estate Planning: Protecting Your Dependents

Question 1

Which of the following statements concerning survivors benefits under a company sponsored retirement plan is false?

A)The employee has the power to reject the benefits in exchange for a larger single life annuity.
B)Most company retirement plans provide death benefits for s a surviving spouse.
C)Survivorship benefits for a surviving spouse are required under the Retirement Equity Act of 1984.
D)Both post and pre-retirement surviving spouse benefits are required under federal law.

Answer 1

The employee has the power to reject the benefits in exchange for a larger single life annuity.

Question 2

Which of the following statements concerning Social Security survivor benefits is false?

A)Only widows with a young child are entitled to benefits.
B)Survivor benefits are based on the historic earnings of the deceased.
C)A dependent parent age 62 or above may receive benefits.
D)To be eligible for survivors' benefits the deceased must have had a record of recent or past earnings.

Answer 2

Only widows with a young child are entitled to benefits.

Question 3

Which of the following is the least likely to be included in the transition fund?

A)Home mortgage
B)Probate costs
C)Funeral and burial costs
D)Uninsured medical costs

Answer 3

Home mortgage

Question 4

Unfunded estate liquidity may exist at death if

A)you have a life insurance protection gap.
B)you need to plan for the retirement need of your survivors.
C)your survivors have insufficient cash to pay immediate death related expenses.
D)you do not have the correct type of life insurance.

Question 5

The face amount for a particular life insurance policy is equal to

A)the amount you would receive if you canceled the insurance policy.
B)the sum of all past premiums.
C)the sum of all past premiums minus dividends paid.
D)the amount of death protection without accidental death benefits or reduction for policy loans.

Question 6

There are many reasons why people buy life insurance.Of these

A)the best reason is the protection provided your beneficiaries.
B)the best reason is the forced savings generated by term life insurance.
C)the best reason is the interest return on ordinary life.
D)none have proven important for most families.

Question 7

The cash value and surrender value on a life insurance policy may differ because of

A)accidental death benefits.
B)dividends.
C)improved survival probabilities.
D)surrender charges.

Question 8

The Life Insurance Protection Gap is equal to

A)Unfunded Needs plus Unfunded Estate Liquidity.
B)Unfunded Needs less Funded Estate Liquidity.
C)Unfunded Needs less Life Insurance Protection.
D)Unfunded Needs less Funding Sources.

Question 9

The "blackout" period refers to the time between

A)the date of death and when survivors benefits begin.
B)when you begin working and you become a covered worker.
C)early retirement age and normal retirement age.
D)when benefits cease for a caretaking spouse and a widow(er)s pension begins.

Question 10

Probate costs are costs associated with

A)outstanding loans due.
B)drawing up the life insurance contract.
C)validating your will and distributing your estate.
D)providing an ongoing maintenance fund.

Question 11

Which of the following would be included in the Transition Fund?

A)Insurance policies
B)College tuition
C)Probate costs
D)Lifestyle assets

Question 12

The best time to begin life insurance coverage

A)is as a child.
B)is as a single adult who has just graduated and entered the labor force.
C)is when you have potential survivors who would suffer a financial loss at your death.
D)is when you need a tax-sheltered investment fund.

Question 13

Which of the following represents the most likely order from those who is likely to need insurance the most to who is most likely to need it the least?

A)Adult with child,retired with spouse,young child
B)Young child,retired with spouse,adult with child
C)Retired with spouse,adult with child,young child
D)Young child,adult with child,retired with spouse

Question 14

The family maintenance fund should not include

A)those expenses that were independently consumed by the insured.
B)all expenses that were jointly consumed by the insured and potential survivors.
C)all expenses that were independently consumed by potential survivors.
D)expenses that were either jointly consumed by both potential survivors and the insured.

Question 15

Surviving dependents may have their Social Security benefits reduced or eliminated

A)if they are found guilty of a felony.
B)if the surviving spouse were married to the decedent for less than five years.
C)if they have substantial market earnings.
D)for any of the reasons cited above.

Question 16

The cash value and surrender value on a life insurance policy may differ because

A)of taxes.
B)of interest returns on the cash value.
C)the policy is owned by the beneficiary.
D)of outstanding policy loans.

Question 17

A policy with an accidental death benefit

A)can pay out more than the face value of the policy given an accidental death.
B)forgives all policy loans in the event of an accidental death.
C)covers the cost of emergency medical services in the event of an accidental death.
D)covers the cost of transporting the remains from the any place in the country to the resident city of the deceased.

Question 18

A good rule of thumb is that an emergency fund should

A)not be separately included in your estimate of insurance needs,if you have properly accounted for those needs elsewhere in your maintenance estimate.
B)equal about three to six months of survivors expenses.
C)equal annual pre-injury family income.
D)equal the difference between annual pre-injury family income and annual post-injury family income.

Question 19

A single life policy

A)may only provide benefits for a single beneficiary.
B)pays out at the death of the single life insured.
C)is only available for unmarried individuals.
D)is only allowed to insure non-dependent adults.

Question 20

Which of the following individuals would definitely not qualify for survivors' benefits under Social Security?

A)Widower of divorced spouse
B)Child of deceased worker under age 18
C)Disabled child of deceased worker over age 18
D)Dependent parent of deceased worker
E)It is possible that under certain circumstances any of the above may qualify for survivor's benefits.

Question 21

Dividend payments on life insurance policies

A)are always nontaxable.
B)are always taxable.
C)may be taken as an itemized deduction if they are less than 2% of adjusted gross income.
D)may be taken as an itemized deduction if they are greater than 2% of adjusted gross income.

Question 22

Life insurance policyholders typically receive dividends from

A)mutual insurance companies.
B)stock insurance companies.
C)both mutual and stock insurance companies.
D)neither mutual nor stock insurance companies.

Question 23

A contingent beneficiary

A)will always share in the insurance pay-out.
B)will share in the insurance pay-out only if he or she satisfies certain conditions set out in the will.
C)will share in the insurance pay-out only if the primary beneficiary is not alive.
D)will share in the insurance pay-out only if the primary and secondary beneficiaries are not alive.

Question 24

The surrender value on a life insurance policy is equal to the

A)cash value.
B)face value.
C)amount of death protection.
D)cash value plus surrender dividends less outstanding loans and surrender charges.

Question 25

A premium is

A)the increase in cash value from investment returns.
B)a return payment on the cost of the policy.
C)a periodic payment for life insurance.
D)not collected by mutual insurance companies.

Question 26

If a life insurance policy is renewable,

A)the policy coverage can be renewed with no change in premiums.
B)the policy coverage can be renewed without a medical exam.
C)the policy coverage can be renewed for a higher face amount.
D)the policy coverage can be renewed with no change in premiums and without a medical exam.

Question 27

The premium on a life insurance policy is

A)a special service charge for monthly rather than annual payments.
B)a reimbursement for previous overpayments.
C)the amount paid out at death minus tax payments.
D)simply the periodic amount paid to the insurance company.

Question 28

For tax purposes a life insurance dividend is considered

A)a partial return of premium and is therefore not taxed.
B)the same as a stock dividend.
C)the same as a capital gain.
D)an adjustment to gross income.

Question 29

Which policy pays out at the first death among the named insured?

A)Joint life
B)Survivorship joint life
C)Viatical life
D)Family life

Question 30

The cash value on a life insurance policy is

A)equal to the savings generated during the existence of the policy contract.
B)equal to the surrender value.
C)equal to the market value of the insurance policy.
D)equal to the amount borrowed against the face amount on the insurance policy.

Question 31

Only a few stock life insurance companies issue

A)ordinary life policies.
B)participating life policies.
C)decreasing term life policies.
D)group life policies.

Question 32

The "beneficiaries" named on an insurance policy are those who

A)own the policy.
B)buy the policy.
C)issue the policy.
D)are protected by the policy.

Question 33

A "single" life policy

A)only covers one life.
B)only covers single individuals.
C)can be purchased with a single dividend.
D)can only have one beneficiary.

Question 34

A viatical company

A)sells whole life insurance.
B)sells only term insurance.
C)purchases life insurance policies from individuals who are likely to die in the near future.
D)purchases life insurance policies from individuals who no longer need life insurance coverage.

Question 35

A survivorship joint life policy pays out at

A)the first death among the named insureds.
B)the last death among the named insureds.
C)each of the deaths among the named insureds.
D)at only the first and the last deaths among the named insureds.

Question 36

Which policy is designed to aid in estate tax planning in that it can pay out at the death of the last surviving spouse?

A)Joint life
B)Survivorship joint life
C)Single life
D)Family life

Question 37

Living benefits insurance

A)pays benefits only to insured who are over 65 years of age.
B)will not pay out benefits to individuals confined to nursing homes.
C)is usually available only on term insurance policies.
D)provides benefits to insureds who are terminally ill or cannot care for themselves.

Question 38

With a joint life policy the insurance pays out at

A)the first death among the named insureds.
B)the last death among the named insureds.
C)each of the deaths among the named insureds.
D)at only the first and the last deaths among the named insureds.

Question 39

Life insurance policies that have dividend payments are known as

A)term life policies.
B)modified life policies.
C)participating life policies.
D)renewable life policies.

Question 40

A guaranteed insurability rider

A)allows you to increase the face amount of the insurance policy without an additional medical examination.
B)allows you to increase the face amount of insurance protection if you pass an additional medical examination.
C)allows you to extend your current coverage without a medical examination.
D)allows you to extend your current coverage at the same premium.However,a medical examination may be required.

Question 41

The best description of "universal life" insurance is that it is

A)a combination of term insurance and tax-deferred savings.
B)insurance for a large number (universe)of people at reduced rates.
C)total family coverage,protecting husband,wife,and dependents.
D)a policy that provides for inter-generational transfers.

Question 42

Given a cash value policy with the following characteristics: face value = $200,000,cash value = $50,000,outstanding loans = $10,000 and surrender charges = $1,000,the benefits payable at death are

A)$200,000.
B)$199,000.
C)$190,000.
D)$150,000.

Question 43

In which of the following policies does the face amount of the policy decrease over time?

A)Whole life
B)Renewable term
C)Decreasing term
D)Universal life

Question 44

Deposit term insurance is

A)typically a good buy,because it combines the benefits of both cash value insurance and pure term protection.
B)low cost insurance sold by banks to their customers.
C)typically a poor buy,because it is really high cost cash value insurance.
D)high cost insurance sold by banks to their customers.

Question 45

In which of the following policies does the face amount of the policy decrease at a set age?

A)Whole life
B)Modified whole life
C)Level renewable term
D)Deposit term

Question 46

The nonforfeiture clause ensures that

A)cash value is protected by financial reserves.
B)sales commissions are paid in the event of a prematurely terminated policy.
C)you do not lose the cash value of the policy if you cease making payments.
D)beneficiaries do not have to forfeit the proceeds to other claimants on the death estate.

Question 47

Given the same face amount of insurance protection,which of the following would have the most rapid cash value build-up?

A)Renewable term insurance
B)Whole life insurance
C)Limited payment ordinary life insurance
D)Modified whole life insurance

Question 48

Given a cash value policy with the following characteristics: face value = $200,000,cash value = $50,000,outstanding loans = $10,000 and surrender charges = $1,000,the amount of death protection is

A)$200,000.
B)$190,000.
C)$150,000.
D)$140,000.

Question 49

The incontestability clause typically indicates that the insurance company will not challenge the validity of statements made in the insurance contract

A)after a specified period of time,if the incorrect statements were either honest mistakes or unintentional omissions.
B)after a specified period of time,regardless of why the misstatements or omissions were made.
C)after the contract is accepted by the company,if the incorrect statements were either honest mistakes or unintentional omissions.
D)after the contract is accepted by the company,regardless of why the misstatements or omissions were made.

Question 50

Given a cash value policy with the following characteristics: face value = $200,000,cash value = $50,000,outstanding loans = $10,000 and surrender charges = $1,000,the cash surrender value is

A)$199,000.
B)$59,000.
C)$49,000.
D)$39,000.

Question 51

Group mortgage life is most similar to

A)whole life insurance.
B)decreasing term insurance.
C)renewable term insurance.
D)deposit term insurance.

Question 52

Policy loans on cash value insurance

A)are permitted only if the insured is likely to die within one year.
B)are typically made at rates substantially above those on unsecured personal loans.
C)are a convenient source of liquidity.
D)do not reduce the payout at time of death.

Question 53

Term insurance differs from whole life insurance in that term

A)is more expensive per dollar of death protection.
B)provides protection only during the term of the policy and not for your whole life.
C)is designed for single individuals while whole life is for families.
D)is offered only through employer-sponsored insurance programs.

Question 54

These two products provide decreasing death protection over time.

A)Decreasing term and group mortgage insurance
B)Decreasing term and universal life insurance
C)Group mortgage and universal life insurance
D)Group mortgage and variable life insurance

Question 55

Which of the following policies has little or no cash value buildup?

A)Universal life
B)Variable life
C)Term life
D)Adjustable life

Question 56

With an adjustable life insurance policy,

A)you may adjust both the face amount and the premium payments.
B)you may adjust the face amount,but not the premium payments.
C)you may adjust the premium payments,but not the face amount.
D)you may adjust the payout feature on the policy.However,you are not able to adjust either the face amount or the premium payments.

Question 57

In which of the following policies does the premium typically increase as you age?

A)Whole life
B)Renewable term
C)Decreasing term
D)Group mortgage life

Question 58

Universal life differs from traditional whole life,because

A)universal life explicitly divides premium payments into a death protection component and an investment component.
B)universal life pays a guaranteed interest return over the life of the policy's cash value.
C)those with traditional whole life can borrow against their cash value,whereas those with universal life cannot.
D)those with universal whole life can borrow against their cash value,whereas those with traditional whole life cannot.

Question 59

Pure term insurance

A)cannot be renewed.
B)provides only for individual coverage.
C)has both a savings component and a death protection component.
D)provides only death protection.

Question 60

With decreasing term insurance

A)the cost of the insurance protection decreases as the insured ages.
B)the face amount of insurance protection decreases as the insured ages.
C)the cash value of the policy decreases as the insured ages.
D)the surrender value of the policy decreases as the insured ages.

Question 61

Many financial planners have suggested that you

A)purchase term insurance instead of cash value insurance,and invest the difference.
B)purchase cash value insurance instead of term insurance,and invest the difference.
C)purchase universal life insurance instead of variable life insurance,and invest the difference.
D)purchase variable life insurance instead of universal life insurance,and invest the difference.

Question 62

Which of the following can be accomplished through the will?

A)The naming of a guardian for the children
B)The provision for specific bequests
C)The creation of a testamentary trust
D)all of the above

Question 63

A rating of A++ in Best's Insurance Reports indicates the life insurance company

A)is financially stable.
B)has provided superior returns to its stockholders.
C)provides low-cost protection.
D)has had an exceptional growth in sales over the past five years.

Question 64

The interest adjusted net cost index

A)should be used to compare the relative cost of whole life and term insurance.
B)calculates the annual cost of a given amount of insurance protection based upon a 5% return on alternative investments.
C)is used to measure the financial stability of insurance companies.
D)is equal to net premiums (annual premiums less dividends).

Question 65

The individual appointed by the judge to manage the estate immediately after death when there is no valid will is known as the

A)executor.
B)administrator.
C)grantor.
D)grantee.

Question 66

The individual appointed by the deceased to manage the estate immediately after death is know as the

A)executor.
B)administrator.
C)grantor.
D)grantee.

Question 67

A testatrix is

A)a witness to the signing of the will.
B)the author of the will.
C)the probate lawyer.
D)a female beneficiary.

Question 68

Variable life differs from universal life in that

A)variable life has an investment component and universal life does not.
B)universal life has an investment component and variable life does not.
C)variable life's cash value depends on an underlying portfolio of financial investments.
D)variable life provides a guaranteed investment return.

Question 69

If you die intestate,

A)there will be a state-mandated distribution of your assets.
B)your estate will be distributed according to the terms of your will.
C)your estate will be distributed entirely to your children with your wife receiving nothing.
D)your estate will be distributed entirely to your wife with your children receiving nothing.

Question 70

Which of the following is a tax advantage associated with cash value insurance?

A)Capital gains taxes on the cash value build-up are deferred until the cash value is withdrawn.
B)Ordinary income taxes on the cash value build-up are deferred until the cash value is withdrawn.
C)At death the face amount of the policy passes to the beneficiary free of either income or capital gains taxes.
D)All of the above are tax advantages of cash value life insurance.

Question 71

You can avoid current taxes on a withdrawal of cash value if

A)you are over age 59 1/2.
B)you are under age 59 1/2.
C)you switch your investment earnings into another policy and fill out an 1035 exchange form.
D)you assign the proceeds to a nonrevocable trust.

Question 72

"Direct recognition" occurs when the insurance company

A)reduces dividend payments because of an unexpected increase in costs.
B)increases premiums in recognition of the insureds advancing age.
C)reduces the rate earned on a portion of the cash value,because the insured has taken out a policy loan.
D)revises its actuarial factors to reflect the changing risk environment.

Question 73

Universal life

A)combines term protection and cash value buildup in one convenient policy.
B)typically offers a better return on the cash value buildup than traditional whole life policies.
C)permits the insured to vary premium payments within certain limits.
D)does all of the above.

Question 74

Which of the following policies can be sold only by a registered securities dealer?

A)Universal life
B)Variable life
C)Whole life
D)Term life

Question 75

To die "intestate" means to die

A)while a resident of more than one state.
B)without an heir apparent.
C)without estate.
D)without a valid will.

Question 76

One of the two major purposes of estate planning mentioned by the author is to

A)transfer your assets at death in a manner consistent with your wishes.
B)accumulate as much wealth as possible.
C)avoid leaving a death estate by engaging in life transfers.
D)avoid transfers of assets that pass through probate.

Question 77

If you die without a will,the court will appoint the following to handle your death estate:

A)a testator.
B)an executor.
C)an administrator.
D)a grantor.

Question 78

The life insurance policy that permits both flexible premium payments and cash value investment selection is

A)variable universal life.
B)endowment life.
C)universal life.
D)modified whole life.

Question 79

Property and wealth transferred at death is known as the

A)probate estate.
B)funded estate.
C)remainder.
D)death estate.

Question 80

Which one of the following is not true of the executor?

A)The executor will normally be paid a fee for services performed.
B)The named executor does not have the right to decline appointment as executor.
C)Unless stated otherwise in the will,the executor must post bond to guarantee performance of duties.
D)The executor manages the estate during probate.