NC Life Insurance - Other Life Topics - Chapter Quiz with Verified Solutions

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NC Life Insurance - Other Life Topics - Chapter Quiz with Verified Solutions Contracts that are prepared by one party and submitted to the other party on a "take it or leave it" basis are classifie... d as A. Binding contracts. B. Contracts of adhesion. C. Unilateral contracts. D. Aleatory contracts. ✔✔(B) Contracts of adhesion Insurance policies are written by the insurer and submitted to the insured on a "take it or leave it" basis. The insured does not have any input into the contract, but simply adheres to the contract. If only one party to an insurance contract has made legally enforceable promise, what kind of contract is it? A. Conditional B. Unilateral C. Aleatory D. Bilateral ✔✔B. Unilateral In a unilateral contract, only one of the parties to the contract is legally bound to do anything Which of the following individuals must have insurable interest in the insured? A. producer B. policy owner C. beneficiary D. underwriter ✔✔B. policy owner policy owner-the policy owner must have an insurable interest in the insured, i.e. his/her own life if the policy owner and the insured is the same person, or in the life of a family member or a business partner. When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will A. Issue the policy anyway and pay the face value to the beneficiary B. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved C. Return the premium to Y's estate, since it has no obligation to pay the death claim D. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued ✔✔A. Issue the policy anyway and pay the face value to the beneficiary The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for. To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters? A. 4 credits B. 6 credits C. 10 credits D. 40 credits ✔✔B. 6 credits To be considered currently (or partially insured, an individual must have earned 6 credits during the last 13-quarter period. Traditional IRA contributions are: A. Partially tax deductible depending on the income level B. Tax deductible C. Deducted based on the income level D. Never tax deductible ✔✔B. Tax deductible The following taxation rules apply to contributions made to traditional IRA plans: tax-deductible contributions for the year of the contribution (based on the person's income); contributions must be made in "cash" in order to be tax deductible; excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA; and tax-deferred earnings are not taxed until withdrawn. In order to quality for conversion from a group life policy to an individual policy of the same coverage, a person must have been insured under the group plan for how many years? A. 1 B. 3 C. 5 D. 10 ✔✔C. 5 If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage. Which of the following is NOT an example of a business use of life insurance? A. Buy-sell funding B. Executive bonuses C. Key person D. Worker's compensation ✔✔D. Worker's compensation Workers Compensation is a benefit payable when a worker is injured by a work-related injury, regardless of fault or negligence. It is not considered a business use of insurance. Who can make a fully deductible contribution to a traditional IRA? A. A person whose contributions are funded by a return on investment B. An individual not covered by an employer-sponsored plan who has earned income C. Anybody: all IRA contributions are fully deductible regardless of income level D. Someone making contributions to an educational IRA ✔✔B. An individual not covered by an employer-sponsored plan who has earned income Individuals who are not covered by an employer-sponsored plan may deduct the amount of their IRA contributions regardless of their income level. When must insurable interest exist in a life insurance policy? A. At the time of loss B. At the time of application C. At the time of policy delivery D. When there is a change of the beneficiary ✔✔B. At the time of application In life insurance, insurable interest must exist at the time of application Which of the following is true regarding taxation of dividends in participating policies? A. Dividends are taxable in some life insurance policies and non taxable in others B. Dividends are considered income for tax purposes C. Dividends are not taxable D. Dividends are taxable only after a certain amount is accumulated annually ✔✔C. Dividends are not taxable Dividends are not considered to be income for tax purposes since they are the return of unused premiums. The interest earned on the dividends, however is subject to taxation as ordinary income. Which of the following applicants would NOT qualify for a Keogh Plan? A. Someone who works 400 hours per year B. Someone who has been employed for more than 12 months C. Someone who is over 25 years of age D. Someone who works for a self-employed individual ✔✔A. Someone who works 400 hours per year A person must have worked at least 1,000 hours per year to be eligible for a Keogh Plan All of the following are considered Social Security benefits EXCEPT A. Disability B. Survivors C. Retirement D. Group ✔✔D. Group Social Security provides three types of benefits: Retirement, Disability, and Survivors If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy? A. It is taxable only if it exceeds the amount paid for premiums by 50% B. It is automatically taxable C. It is only taxable if the cash value exceeds the amount paid for premiums D. It is not considered to be taxable ✔✔C. It is only taxable if the cash value exceeds the amount paid for premiums The cash value of a surrendered policy is only considered to be taxable as income if the cash value exceeds the amount of premiums paid for the policy An Insurer neglects to pay a legitimate claim that is covered under the terms policy. What term best describes what the Insurer has violated? A. Consideration B. Good Faith C. Representation D. Adhesion ✔✔A. Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss. [Show More]

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