State: Georgia | Category: Life Insurance | All tests in this Category:
Practice Test 1 Practice Test 21. Which of the following statements is true about the tax treatment of life insurance premiums when used to fund a buy-sell agreement?
Typically, premiums paid by a business for life insurance on the lives of owners under a buy-sell are not deductible as a business expense.
2. Which doctrine prevents a party from denying or asserting a claim after it has misrepresented facts or delayed action, based on prior conduct or representations?
The estoppel doctrine prevents a party from taking a position contrary to its prior conduct or statements if others relied on them.
3. The premium is:
Premium is the price for the policy coverage paid by the insured or policyowner.
4. Can dependent coverage be included in a Georgia group life plan?
Dependent coverage for spouses and/or children is commonly offered in group life plans.
5. A policy illustration is typically used to show:
Policy illustrations display non-guaranteed elements like dividends or rate projections where applicable; actual results may differ.
6. Who generally receives the death benefit in a GA group life plan when the employee dies, according to typical plan design?
The death benefit is paid to the beneficiary designated by the employee on the certificate.
7. Twisting, as it relates to Georgia life insurance, is best described as:
Twisting occurs when a policy is replaced primarily to earn commissions, usually at the insured's expense or detriment.
8. An advertisement stating that dividends are guaranteed for life when dividends are not guaranteed would be considered:
Advertising dividends as guaranteed when they are not guaranteed is misleading and violates UDAP.
9. Which settlement option provides guaranteed income for life to the beneficiary?
The life income option provides payments for the beneficiary's lifetime, often with or without a guaranteed period.
10. Distributions from a qualified annuity (funded with pre-tax dollars) are generally taxed as?
Qualified annuity distributions are taxed as ordinary income because contributions were made with pre-tax dollars.
11. Which statement about survivor benefits is true?
A surviving spouse can receive up to 100% of the deceased worker's benefit if they wait until their own FRA; claiming earlier typically results in a reduced amount.
12. Which of the following is a defined-contribution plan?
A 401(k) plan is a defined-contribution plan where the eventual benefit depends on the account balance and contributions, rather than a predefined lifetime payout formula.
13. How does a critical illness policy define covered illnesses?
CI policies define coverage by listing specific illnesses on the policy. If an illness is not listed, it is typically not covered unless the policy states otherwise.
14. During the contestability period, misstatements of age or sex discovered can lead to which of the following?
Most policies have a contestability period (commonly two years); misstatements found can lead to rescission or adjustment of benefits.
15. Premium payments are typically applied to which premium due first?
Premiums are normally allocated to the oldest due premium first to satisfy outstanding obligations and prevent compounding overdue amounts.
16. Which of the following is a physical hazard example?
Faulty electrical wiring is a physical hazard because it physically increases the risk of a peril, such as fire.
17. Which statement best describes the tax treatment of life insurance death benefits when paid to heirs or beneficiaries of a business owner?
Death benefits paid to beneficiaries are generally received income tax-free, though estate or other taxes may apply separately.
18. Which of the following is an explicit exception to the 10% early withdrawal penalty on distributions from a qualified retirement plan?
Substantially equal periodic payments (SEPP) are an IRS-allowed exception to the 10% penalty for early withdrawals from qualified plans, under specific IRS rules.
19. Which is the typical grace period length for life insurance premiums in most jurisdictions?
Most jurisdictions require a minimum grace period of 30 days for premium payments, allowing time to make the payment without lapse.
20. Group life benefit amounts are commonly determined as which of the following?
Group life benefits are typically a multiple of earnings, subject to plan maximum limits.
21. If both the insured and the designated beneficiary die before settlement, the death benefit may be paid to
If both die before settlement, the death benefit may go to the insured's estate or to the contingent beneficiary, depending on policy terms and designations.
22. Under the state's conditional receipt provisions, when does temporary coverage typically begin if the premium is paid with the application?
A conditional receipt provides temporary coverage from the date of the application/receipt, subject to underwriting and policy approval.
23. Which of the following best describes the concept of insurable interest?
Insurable interest exists when the policyowner has a valid stake in the subject matter of the risk; it prevents wagering policies.
24. Which principle allows insurers to predict losses more accurately by pooling many similar exposures?
The law of large numbers states that as the sample size grows, the actual results approach the expected results, improving predictability of losses for pricing and reserves.
25. How is the exclusion ratio generally calculated for a nonqualified annuity?
Exclusion ratio = investment in contract / expected return. The 'expected return' is the anticipated amount to be returned over the life of the contract.
26. Which statement best describes the liquidity purpose of life insurance in estate planning for a business owner?
Life insurance can provide liquidity to cover estate taxes and buy out the business owner's stake so the business can continue without forced sales.