Question 1

Which of the following statements is true regarding Social Security?

For 2016, a worker receives one credit for each $1,260 of covered earnings. There is no maximum number of credits a person can earn each year.

For 2016, a worker receives one credit for each $1,260 of covered earnings. A maximum of 5 credits can be earned each year.

For 2016, a worker receives one credit for each $970 of covered earnings. A maximum of 4 credits can be earned each year.

For 2016, a worker receives one credit for each $1,260 of covered earnings. A maximum of 4 credits can be earned each year.

For 1 points

Question 2

In the case of an immediate variable annuity, an "Assumed Investment Rate" (AIR) is a key factor in determining the initial amount of income because:

It is helpful to think of the AIR as a "hurdle rate" that the investment performance of the sub-account(s) must exceed in order for the annuity payments to increase.

Subsequent payments will be based on the unknown future investment performance of the sub-accounts relative to the initial annuity income payments.

The insurance company usually offers a short menu of rate assumptions that typically range from 3% to 6%.

The selection of a lower AIR should result in a lower likelihood of income decreases resulting from weaker sub-account investment performance, and a greater possibility of future increases of income resulting from positive sub-account investment performance.

All of the above are reasons why an AIR is a key factor in determining the initial amount of income in an immediate variable annuity.

For 1 points

Question 3

How many life insurance policies are required to structure a Cross Purchase Buy-Sell Agreement involving 6 co-owners?

1

6

30

36

For 1 points

Question 4

Ted has just died at age 48 leaving behind his wife and children. His wife, Donna, is unclear about what financial resources Ted had to help sustain the family. Ted had worked as an editor for a large newspaper for 15 years. Which of the following is not a potential source of cash or income for Donna and her children?

Social Security income benefits

Employer-sponsored death benefits

Employer-sponsored retirement plan assets

Existing or potential spousal income

All of the above are potential sources of income or cash

For 1 points

Question 5

Raphael is 25 years old, but is very youthful looking and has been telling everyone that he is 20 years old. He has applied for a life insurance policy that has a premium of $10 per $1,000 for age 25, but $8 per $1,000 for age 20. When he applied for the insurance, he told his agent that he was 20 years old and purchased a $200,000 life insurance policy. He paid the annual premium of $1,600 and was involved in a fatal car accident 3 weeks later. How much will the insurance company pay to his beneficiary if they determine Raphael was actually 25 years old and not 20, as he stated on his insurance application?

$200,000

$180,000

$160,000

$0

For 1 points

Question 6

Charles, age 58, comes to your office to discuss his life insurance needs. He lives in a rental home and has been dating Camilla for 6 years. He plans to marry her when his mother, who is quite wealthy, either passes away or gives him permission. Charles has two grown, fully independent, healthy sons (ages 21 and 24) from a prior marriage. Charles earns $50,000 per year from various royalties and has $1,000,000 in a retirement account. What size life insurance policy would you recommend he purchase?

More than $1,000,000

$1,000,000

$250,000

None

For 1 points

Question 7

All of the following would be considered disadvantages of a Cross Purchase Plan vs. a Stock Redemption Plan EXCEPT:

The surviving stockholders' tax basis after a Stock Redemption remains the same versus a Cross Purchase where the buyers basis increases after a sale takes place.

Very secure funding, such as life insurance, should be in place to support the purchase. When there are a large number of owners, an unwieldy number of policies must be purchased by all of the owners to fund the agreement. In addition, if a partner/shareholder dies, a good deal of administrative adjustments must take place to properly realign the funding.

If the proportional size of ownership and/or the ages of owners vary, the burden of funding can be too much for a younger owner with a small minority interest in the company.

All of the above are considered disadvantages of a Cross Purchase Plan.

For 1 points

Question 8

Mike's parents both die from natural causes before they turned 35 years of age. Mike has been married for six years and has 2-year-old twin daughters. If Mike wants to have sufficient asset value to generate the income needed to meet his family's financial needs and to preserve that value for his estate, what approach would you use to determine his life insurance needs?

Capital Needs Analysis Approach

Human Life Value Approach

Financial Need Analysis

For 1 points

Question 9

Which of the following are accurate characteristics of immediate fixed annuities?

1. Issued in dollars based on the premium paid
2. Provides a guaranteed level of income
3. The owner assumes investment, interest rate and inflation risk

1 only

2 only

3 only

1 and 2 only

1, 2 and 3

For 1 points

Question 10

Ownership of a deferred variable annuity is generally issued in:

Shares

Accumulation shares

Accumulation units

Dollar units

None of the above

For 1 points

Question 11

All of the following would be considered disadvantages of a Stock Redemption (Entity Purchase) Plan EXCEPT:

In a flow-through entity such as a partnership or Sub S Corporation, nondeductible payments to pre-fund or purchase a departed or deceased owners interest can result in substantial phantom income to the surviving owners.

The remaining stockholders' tax basis remains the same, versus increasing, after a sale takes place.

This is a much more complex structure than a Cross Purchase Plan.

All of the above are likely disadvantages of a Stock Redemption Plan.

For 1 points

Question 12

Mary heard that a life insurance contract contains a grace period. She wants to know which of the following statements about the grace period clause is correct:

It allows for defaulted premiums to be paid out of the cash value in a policy.

It is designed to prevent a policy from lapsing due to late payments; usually within 31 days of the due date.

None of the above.

It must be elected by the insured at the time the policy is taken out.

Allows for the payment of benefits if the insured commits suicide during the first two years of the policy.

For 1 points

Question 13

Which of the following are distinguishing safety features of a deferred variable annuity contract underwritten by a life insurance company?

1. The investment sub-accounts are segregated from the insurance company's general account and held in sub-accounts managed by trustees.
2. State insurance departments back-up any guarantees of the deferred annuity contracts, typically up to $5,000,000 per owner.
3. All states require that insurance companies set up reserves for annuity obligations as well as surplus requirements and required minimum levels of capital to offer these contracts.
4. Deferred annuity premiums (deposits) and account balances are not FDIC-insured.

1, 2 and 3 only

1 and 3 only

4 only

1 and 2 only

1, 2 and 4 only

For 1 points

Question 14

Which of the following must be non-forfeiture options of all long-term life insurance policies that accrue cash value?

1. Paid-Up Insurance
2. Cash Surrender Value
3. Extended Term Insurance

1 only

2 and 3 only

1 and 3 only

1, 2 and 3 only

For 1 points

Question 15

John dropped a dumbbell on his hand and, as a result, cannot perform his job as a hand model or any other job for that matter. His injury is expected to fully heal in 6 months, at which time he will be able to work again. In the 6 months that John cannot model, is he eligible for Social Security disability coverage?

Yes

No

Depends on John's age

For 1 points

Question 16

Rick owns very productive copper mines and needs someone who can help him develop a comprehensive financial plan. One of his major concerns is how to lower his estate tax liability and avoid paying the tax out of the proceeds from his largely illiquid estate. His accountant estimates the potential estate tax liability to be approximately $5,000,000. If you could only advise one action, what would you advise him?

Set up an irrevocable life insurance trust to own a $5,000,000 life insurance policy.

Implement an annual gifting program.

Purchase a $5,000,000 life insurance policy as owner.

The estate tax is scheduled to phase out over the next several years, so do nothing.

For 1 points

Question 17

If Paul's wife Lisa retires at her NRA, is it possible that Paul, who is 60, could receive Social Security benefits?

No

Yes

Yes, if Paul has dependent children under the age of 16

Yes, if Paul has been married to Lisa for at least 6 months

Yes, if Lisa works for 2 extra years

For 1 points

Question 18

Mary, who is in poor health, wants to start an annuity to provide income for her and possible long-term care for her husband, Joseph, who has been recently diagnosed with early stage Alzheimer's disease. What type of annuity would you advise her to purchase?

10-year period certain to guarantee income for Joseph

Life annuity for Mary

Joint and Survivor

Long-Term Care Insurance for Joseph

For 1 points

Question 19

Which of the following is a primary characteristic of a deferred fixed annuity?

Offers a certain or guaranteed level of interest earnings for the life of the annuity

Transfers the investment risk to the annuity owner

Provides a substantial inflation hedge

Offers a wide range of investment options

None of the above

For 1 points

Question 20

All of the following are advantages of deferred fixed annuities EXCEPT:

The principal value does not fluctuate with changes in market interest rates.

When purchased from a highly rated and regulated insurance company, the guarantees of principal and rates are relatively very secure.

Only a deferred fixed annuity provides the leverage of tax deferral on earnings until withdrawn.

Costs and fees are minimal.

None of the above.

For 1 points

Question 21

Annuity selection should be matched with client needs. Which of the following, if any, is a mismatch?

Equity-Indexed Annuity: Client seeking higher interest rate guarantee than in a fixed annuity

Fixed annuity: Client extremely averse to investment risk and less concerned with inflation risk

Variable Annuity: Client extremely averse to inflation risk and less concerned with investment risk

None of the above

For 1 points

Question 22

Which of the following are primary factors in determining premium amounts and policy performance?

1. Mortality costs
2. Administrative expenses
3. Investment earnings

1 only

2 only

1 and 2 only

1 and 3 only

1, 2 and 3

For 1 points

Question 23

All of the following are advantages of deferred variable annuities EXCEPT:

Deferred variable annuities offer a broad range of investment options.

Investment assets are held in sub-accounts and managed by trustees.

Changes in asset allocation and/or rebalancing can be accomplished without incurring taxable gains and usually without any charges.

Provides professional management of portfolios and typically offers availability of index funds.

All of the above are advantages of deferred variable annuities.

For 1 points

Question 24

Chuck recently graduated from college and was hired as a stockbroker. He heard news stories that the Social Security Trust Fund will likely run out of money in 20 years unless Congress changes the system. He asks you how the Social Security program is funded. You advise him that the funds come from the following sources:

1. Self-employment tax
2. Employer payroll taxes
3. Employee payroll taxes
4. Sales tax

Which funding source(s) is (are) correct?

2, 3 and 4

1 only

All of the above

1, 2 and 3

2 and 3 only

For 1 points

Question 25

If Ted owns a participating life insurance policy, he may receive dividends. His dividend options typically include all of the following forms EXCEPT:

1. Payments in cash
2. A reduction in premiums
3. Purchase a ten-year term life insurance policy
4. Accumulate at interest.

2 and 3

All of the above

1 and 4

3 only