Sarah is using the needs approach to determine how much life insurance to buy. Her
cash needs are $30,000; her income needs are $140,000; and special needs are
$100,000. Sarah has the following assets: $20,000 in bank accounts, $30,000 in
retirement plans, and $40,000 in investment accounts. Sarah owns no individual life
insurance. She is covered by a $50,000 group life insurance policy through her
employer. Based on this information, how much additional life insurance should Sarah
purchase?
A) $80,000
B) $130,000
C) $150,000
D) $160,000
One insured status under Social Security requires you to have earned at least six credits
duing the last 13 calendar quarters ending with the quarter of death, disability, or
entitlement to retirement benefits. This insured status is
A) disability insured.
B) temporarily insured.
C) fully insured.
D) currently insured.
Advantages of cafeteria plans include all of the following EXCEPT
A) simplicity of benefit administration.
B) employees can select benefits that best match their needs.
C) reduced taxes for employees.
D) greater employer control over increasing benefit costs.
All of the following are social costs associated with insurance EXCEPT
A) insurance company operating expenses.
B) fraudulent claims.
C) inflated claims.
D) increased cost of capital.
Which of the following statements about the minimum vesting standards for a qualified
defined benefit plan is (are) true?
I. Under cliff vesting, an employee must be at least 50 percent vested after 5 years of
service.
II. Under graded vesting, an employee must be at least 20 percent vested after 3 years
of service and 100 percent vested after 7 years.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about the Linton yield is (are) true?
I. It is based on the assumption that a cash-value policy can be viewed as a combination
of insurance protection and a savings fund.
II. It is the average compound annual rate of return required to make the savings
deposits in a life insurance policy equal to the policy’s guaranteed cash value at the end
of a specified period.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements describes how the net payment cost index differs
from the surrender cost index?
A) Dividends are ignored.
B) The cash value is ignored.
C) Premiums are not accumulated at a specified interest rate.
D) Dividends are not accumulated at a specified interest rate.
Which of the following statements about the liability limits of the PAP is (are) true?
I. The policy can be written with split limits of liability.
II. Prejudgment interest is considered part of the damage award and is subject to the
policy limit of liability.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about SIMPLE retirement plans is true?
A) They are limited to employers with 100 or fewer eligible employees and who do not
maintain another qualified plan.
B) Employees are not permitted to make SIMPLE plan contributions.
C) Employers are subject to more stringent nondiscrimination rules than those that
apply to most qualified plans.
D) Employer contributions are fully taxable in the year of the contribution, but qualified
distributions are received tax-free.
Turner Company self-insures its group life and group health insurance plans. Turner
entered into an agreement with ABC Insurance through which ABC handles the plan
design, claims processing, and record keeping for Turner. The agreement between
Turner and ABC is called a(n)
A) preferred provider agreement.
B) administrative services only contract.
C) exclusive provider agreement.
D) point-of-service contract.
One provision of the Affordable Care Act is designed to benefit young adults up to age
26. This provision allows these young adults to
A) remain covered under their parents’ health insurance policies.
B) receive a tax credit for their health insurance premium if they are unemployed.
C) receive low-interest government loans to finance their health insurance.
D) receive coverage under Medicare if they are not covered by a private health
insurance plan.
Which of the following statements about the sale of property and liability insurance
through the direct response system is (are) true?
I. Selling expenses are higher because market segmentation tends to be less precise than
with other marketing methods.
II. It is the most appropriate system for selling complex products.
A) I only
B) II only
C) both I and II
D) neither I nor II
What is the legal significance of a material misrepresentation in an insurance
application?
A) The contract is automatically voided from its inception.
B) The contract is voidable at the insurer’s option.
C) Loss payments are reduced by the degree of the misrepresentation.
D) The insurer is immediately entitled to a higher premium.