Snapshot Questions

Question 1

1

Answer 1

No, policyowner owner must face possibility of losing $ or something of value in event of loss to purchase insurance

Question 2

2

Answer 2

Your own life

A close blood relative, spouse, or adopted child

A business relationship or other financial obligation

Question 3

3

Answer 3

When policy is sold, owner receives %’age of policy’s face value from one who purchases policy

New owner continues to maintain premium payments & will eventually collect entire death benefit

Question 4

What does a viatical settlement allow?

Answer 4

One living w/ life threatening condition can sell existing life insurance policy & use proceeds when they’re most needed, b4 their death (they’re separate contracts in which insured sells death benefit 2 3rd party @ discounted rate)

Question 5

What are the 6 personal uses of life insurance?

Answer 5

Survivor protection
Estate creation
Cash accumulation
Liquidity
Estate conservation
Viatical settlements

Question 6

Availability of cash to be insured

Answer 6

Liquidity; some policies offer cash values that can be borrowed @ any time & used for immediate needs

Question 7

Example of product that provides cash accumulation?

Answer 7

Whole life policy that offers insured living benefits in form of cash values

Question 8

How does estate conservation work?

Answer 8

Life insurance proceeds may be used to pay state inheritance taxes & federal estate taxes so that it’s not necessary to sell off assets from estate to pay these costs

Question 9

Insureds who sell death benefit 2 3rd party?

Answer 9

Viators

Question 10

Who represents that insureds/viators in a viatical settlement?

Answer 10

Viatical brokers

Question 11

Who represents the providers in a viatical settlement?

Answer 11

Viatical producers

Question 12

4

Answer 12

need

Question 13

5

Answer 13

Loss of income in event of premature death of insured (agent uses probably future earnings, inflation, # of yrs to retirement & time value of $ to calculate one’s life value)

Question 14

Needs approach is based upon what?

What does it attempt to identify/summarize?

Answer 14

Predicated needs of a family after premature death of insured; looks @ family’s income-expenditure equation

Attempts to identify allocation of income, unusual/non-regular expenditures, & additional expenses during readjustment & summarizes most critical prospective expenditures

Question 15

Greatest benefit of graphic analysis of needs approach?

Answer 15

Helps ppl visualize amounts needed as a flow of income

Question 16

4 categories of info that needs to be gathered

Answer 16

Debt
Income
Mortgage
Expenses

Question 17

What costs are covered under lump-sums associated with death?

Answer 17

Final medical expenses of insured; funeral expenses; day-day expenses of maintaining family (rent/mortgage payments, car payments, utilities, groceries, etc.)

Question 18

What is covered by lump-sum needs & objectives?

Answer 18

Estate taxes, day care, insurance premiums, etc.

Question 19

What is the blackout pd for SS in which SS benefits would NOT be paid to surviving spouse?

Answer 19

After youngest child is 16 & before spouse reaches 60

Question 20

Under this approach, enough insurance is purchased so that when added to other liquid assets, there’s enough to pay income benefits w/out invading the principal (home)

Answer 20

Retention of capital approach

Question 21

6

Answer 21

It obligates business owners/partners (or their heirs) to w/draw from business & sell their interest to surviving partner(s)/key person @ predetermined price

It is a legal contract that determines what will be done w/ business in event that an owner dies/becomes disabled

Question 22

7

Answer 22

Plan includes a policy in which (under corporate ownership) business owns policies, pays premiums & is beneficiary

In a partnership, it’s an entity plan & business itself is obligated 2 purchase interests of any disabled/deceased partner & increase interests of surviving partners

Question 23

Describe a cross purchase plan

Answer 23

Buy-Sell agreement; policies owned by ind. business partners who pay premiums & are beneficiaries

Each partner agrees to sell business interest 2 surviving partners, & each surviving partner agrees 2 buy interest of deceased partners

Question 24

8

Answer 24

In event of death of key employee who has specialized knowledge, skills or business contacts, this insurance would cover additional costs of running business/replacing employee

Question 25

9

Answer 25

Key policy would be beneficial if one particular employee (who is sole expert on one aspect of the company) were to die unexpectedly. The insurance would lessen the financial loss that would be associated with such a premature death

Question 26

10

Answer 26

If given as an executive bonus, a life insurance policy is tax deductible to employer & income taxable to employee

Question 27

What is an executive bonus?

Answer 27

Arrangement where employer offers 2 give employee a way increase in amt of premium on new life insurance policy on the employee

Question 28

What is Deferred Compensation Funding

Answer 28

Any employer retirement, savings, or other deferred compensation plan that’s not a qualified retirement plan (contractual commitment b/w employer & employee to pay compensation in future yrs)

Question 29

In Addition Funding Plans

Answer 29

Deferred Compensation funding that’s designed to pay amt in addition to employee’s qualified retirement plan

Question 30

Elective

Answer 30

Deferred Compensation funding plan that permits employee to defer part of salary/bonus as tax deferred savings

Question 31

Change of insured provisions

Answer 31

Found in some life insurance policies that are owned by businesses 2 insure life of key employee (in event he/she quits or is terminated, business owner may transfer coverage to a replacement employee)