Sigma

Gwen purchased an interesting life insurance policy. A minimum interest rate is guaranteed on the cash value, but additional interest may be credited based on the investment performance of a group of common stocks. There is also a cap on the additional interest credited to the policy. Based on this information, what type of life insurance did Gwen purchase?

indexed universal life insurance

Daryl, age 42, quit his job. His employer offered a defined contribution pension plan, and the balance in the account was $30,000 when Daryl quit. He can avoid immediate taxation of these funds by

using an IRA rollover account.

Which of the following statements about a decreasing term insurance policy is true?

The face amount of the policy decreases during the policy period, but the premium remains level.

Which of the following statements about the continuation of group health insurance under the COBRA law is true?

A continuation of coverage must be made available even if an employee voluntarily terminates employment.

Vesting refers to

the employee's right to the employer's contributions or benefits attributable to the contributions if employment terminates prior to retirement.

Barb was injured in an auto accident. She was totally disabled and collected disability income benefits for 8 months. She would like to return to work on a part-time basis to see if her recovery is complete. During this period, her insurer will pay reduced disability income benefits. This type of disability is called

partial disability.

Winslow Corporation has many long-term employees. The company has never had a pension plan. Recently, a new management team was hired. The new president said he would like to start a pension plan through which he could reward the long-term service provided by many employees. Which of the following types of plans should Winslow Corporation adopt?

defined benefit plan

Which of the following statements about savings bank life insurance is true?

The objective of savings bank life insurance is to provide low-cost insurance to consumers by holding down expenses.

Beth was injured at work and is eligible to receive workers compensation benefits. All of the following benefits are provided under workers compensation EXCEPT

retirement benefits for dependents.

Which of the following statements about the characteristics of social insurance programs is true?

They are designed to provide a floor of income with respect to the risks that are covered.

Which of the following statements about recent developments in group medical coverage is (are) true? I. After increasing for many years, the premiums for group medical expense coverage have finally started to decline. II. A growing number of employers are offering plans with higher deductibles for employees.

II only

Which of the following statements is (are) true with respect to a joint-and-survivor annuity? I. Some joint-and-survivor annuities reduce the income payment after the first annuitant dies. II. No payments are made after the first annuitant dies.

I only

Which of the following statements about yearly renewable term insurance is (are) true? I. It requires evidence of insurability for renewal. II. It is most appropriate when an insured needs lifetime protection.

neither I nor II

Which of the following statements about the characteristics of social insurance programs is true? (version 2)

Benefits are loosely related to a worker's earnings.

Which of the following statements about Social Security disability benefits is true?

A strict definition of disability is used in the Social Security program.

Which of the following statements about Section 401(k) plans is true?

Elective salary deferrals to these plans are free of federal income taxation until the funds are actually withdrawn.

Under the Medicare Prescription Drug Program, a coverage gap (also called a "donut hole") exists after the beneficiary and drug plan pay a certain amount for covered drugs. The coverage gap refers to

the temporary gap in coverage that begins when the beneficiary and drug plan pay a certain amount for covered drugs during the year and ends when the catastrophic limit is reached and coverage resumes.

Which of the following statements about long-term care insurance is (are) true? I. Long-term care insurance is inexpensive, especially if purchased at older ages. II. Purchasers have a choice of daily benefits and benefit periods.

II only

Agnes and Mary Clare, two elderly sisters, own an annuity covering both of their lives. The annuity pays benefits to them until the first sister dies, then the annuity terminates. Agnes and Mary Clare own a(n)

joint life annuity.

Stan paid an insurance company $50,000 for a fixed annuity when he was 50 years old. At age 62, Stan plans to begin to receive payments from the insurer. There are no guarantees on the number of payments he will receive. Based on the description provided, this annuity can be described as a(n)

deferred annuity.

Greta purchased a long-term care policy. Under a typical policy, Greta's eligibility for benefits may be triggered by

inability to perform activities of daily living.

All of the following statements about cost controls in dental insurance plans are true EXCEPT

To eliminate small claims, there is no coverage for routine oral examinations, X-rays, or cleaning teeth.

Which of the following statements about individual disability income policies that use a two-part definition of total disability is (are) true? I. During the initial period of disability, the insured must be unable to perform the duties of any gainful occupation. II. After the initial period of disability, the insured must be unable to perform the duties of any occupation for which he or she is reasonably fitted by education, training, and experience.

II only

Under a unit-benefit formula, benefits are a function of both

earnings and years of service.

Which of the following statements about indexed universal life insurance is true?

Although a minimum interest rate is guaranteed, the rate credited can be higher if a specified stock index performs well.

Beth's disability income insurance policy provides benefits for accidental death, dismemberment, and loss of sight. The maximum amount payable under this benefit is known as the

principal sum.

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.

II only

Which of the following statements is (are) true with regard to group life insurance? I. Most group life insurance is whole life coverage. II. Most group life insurance plans allow a modest amount of life insurance on the employee's spouse and dependent children.

II only

Life annuity payments are made up of all of the following EXCEPT

unliquidated principal of annuitants who live too long.

Tracy is covered by a group dental insurance plan at work. At her latest check-up, the dentist notes that she needed crowns on two teeth. Under her plan, if the cost of dental work will exceed $500, the dentist submits the treatment plan to the insurer to calculate what the plan will cover and what the employee will pay. This provision is known as a

predetermination of benefits.

All of the following statements about long-term care insurance are true EXCEPT

Premiums can be reduced by electing shorter elimination periods.

Which of the following statements about the financing of unemployment insurance benefits is true?

Part of an employer's contribution is used for administrative expenses, to fund extended benefits, and to maintain a loan fund that can be drawn upon if the state's account is depleted.

Under older group medical expense plans, physicians were paid a fee for each covered service and were reimbursed on the basis of reasonable and customary charges, up to a maximum limit. These older group medical expense plans were called

indemnity plans.

Which of the following statements about unemployment insurance benefits is true?

Most states pay regular benefits for a maximum duration of 26 weeks.

Which of the following is (are) characteristics of HMO managed care plans? I. Unlimited choice of physicians and hospitals II. Emphasis on controlling the cost of covered services

II only

In the context of employee benefits, the term "discrimination" refers to benefit comparisons between

highly compensated employees and non-highly compensated employees.

All of the following statements about the tax treatment of Health Savings Accounts (HSAs) are true EXCEPT

Distributions from a qualified HSA used to fund medical expenses are taxable income.

The effect of an annual out-of-pocket limit in an individual medical expense policy is to

cover 100 percent of eligible medical expenses after an insured has incurred a specified amount of annual out-of-pocket expenses.

Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are) true? I. It involves an analysis of various family needs which must be met if a family breadwinner dies. II. Its use is appropriate only if a person currently has no life insurance protection.

I only

Under a fixed indexed annuity, what name is given to the percentage increase in the stock index that is credited to the contract?

the participation rate

Which of the following statements regarding individual retirement accounts (IRAs) is (are) true? I. If an individual's only income during the year is from investments, he or she cannot make an IRA contribution. II. IRA contributions can be invested in stocks, bonds, and mutual funds.

both I and II

Which of the following statements about tax-deferred retirement plans in the U.S. is true? I. Women, on average, receive lower employment-based retirement income than men. II. One way to hedge against inflation is to invest lump-sum pension distributions in fixed-income investments.

I only

Which of the following statements is (are) true with regard to Roth IRAs? I. The portion of a Roth IRA distribution that is attributable to investment income is taxable. II. There is a maximum income level above which Roth IRA contributions are not allowed.

II only

Which of the following statements is (are) true regarding the taxation of distributions from individual annuities? I. Individual annuity distributions are never taxable. II. Once the annuitant has recovered the premiums he or she paid for the annuity, the entire annuity distribution is taxable.

II only

Carl would like to purchase life insurance. He would also like to invest in a mutual fund. An agent told Carl about a form of life insurance in which Carl could select where the saving component is invested. This form of life insurance has fixed premiums and the cash value is not guaranteed. This type of life insurance is called

variable life insurance.

One insured status under Social Security requires you to have earned at least six credits during the last 13 calendar quarters ending with the quarter of death, disability, or entitlement to retirement benefits. This insured status is

currently insured.

Which of the following statements regarding recent developments in employer-sponsored health plans is (are) true? I. Preferred provider organizations (PPOs) continue to dominate group health insurance markets. II. The number of employers offering medical benefits to workers who retire early has increased.

I only

Which of the following statements is (are) true concerning high deductible health plans? I. An employee can withdraw money tax-free from a health savings account or health reimbursement arrangement to pay covered medical costs. II. There is a cap on an employee's out-of-pocket expenses under the plan.

both I and II

The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the

blackout period.

Under one type of Medicare Advantage Plan, members of the plan can see any doctor or health services provider that accepts Medicare patients. If members receive non-emergency care outside the network of member physicians and care facilities, they must pay higher out-of-pocket costs. This type of Medicare Advantage Plan is a

Medicare PPO.

For a long-term employee who is covered by a defined benefit plan, the highest retirement income will be obtained if his/her retirement income is based on

final average pay.

Which of the following statements is (are) true regarding provisions of the Affordable Care Act (ACA)? I. Provisions of the ACA apply to disability income insurance and long-term care insurance. II. The ACA requires medical expense insurance policies to provide a comprehensive package of essential health benefits.

II only

Which of the following statements is (are) true with respect to a fixed indexed annuity? I. The maximum percentage gain is usually capped. II. There is no downside protection against loss of principal if the annuity is held to term.

I only

Which of the following statements about taxation of Social Security retirement benefits under federal law is (are) true? I. Social Security retirement benefits are never considered taxable income. II. Up to 85 percent of Social Security retirement benefits may be considered taxable income, depending on the amount of other income received by the beneficiary.

II only

All of the following statements about the conversion of a term policy are true EXCEPT

Evidence of insurability is required before a conversion is permitted.

Alex, age 26, purchased a 20-payment whole life insurance policy. After Alex has made 20 premium payments, his life insurance policy is considered

paid-up.

James is concerned that if he purchases a fixed immediate annuity his funds will be tied-up and not accessible if an emergency arises. His insurance agent said that a rider could be attached to his annuity to address this concern. The rider is a(n)

partial cash withdrawal rider.

Which of the following statements is (are) true regarding the Roth IRA? I. Roth IRA contributions are tax deductible. II. Roth IRA investment income accumulates income-tax free.

II only

All the following statements concerning a Roth 401(k) plan are true EXCEPT

Qualified distributions at retirement are fully taxable.

Which of the following statements is (are) true with regard to an annuity payout option that includes a cost-of-living adjustment? I. The initial monthly payment is lower than the initial payment a fixed annuity would have provided if purchased at the same age. II. Periodic payments to the annuitant are adjusted for inflation.

both I and II

HMOs typically pay network physicians or medical groups a fixed annual or monthly payment for each member, regardless of the frequency or type of service provided. This payment is called a

capitation fee.

Which of the following statements concerning vesting under qualified retirement plans is (are) true? I. The same vesting rules apply to defined benefit plans and defined contribution plans. II. Employer contributions to a defined contribution plan must vest faster than employer contributions to a defined benefit plan.

II only

All of the following statements about optional disability income benefits are true EXCEPT

Adding a return of premium rider results in a lower initial premium.

An HMO that contracts with two or more independent group practices to provide medical services to covered members is called a(n)

network model HMO.

The Affordable Care Act requires employers with 100 or more employees to provide health insurance on the employees or pay a penalty if at least one employee receives a tax credit and coverage through the Health Insurance Marketplace. This requirement–providing insurance or paying a fine–is known as the

employer shared responsibility.

Most family heads need substantial amounts of life insurance. However, with limited income, money spent on life insurance reduces the amount of discretionary income available for other high-priority needs. What an insured person gives up when he or she purchases life insurance instead of using the premium dollars for other purposes is called the

opportunity cost of buying life insurance.

Which of the following statements about the impact of the implementation of the Affordable Care Act (ACA) on workers compensation is true?

Implementation of the ACA will create higher healthcare provider prices.

Which of the following statements about trust fund plans is (are) true? I. The trustee typically purchases annuities for retiring employees. II. The trustee guarantees the adequacy of the fund to pay the promised benefits.

neither I nor II

Michael wants to make sure that life insurance proceeds are available to pay his outstanding mortgage balance if he dies. He purchased a type of life insurance in which the amount of coverage gradually declines, just as his outstanding mortgage balance gradually declines. This type of life insurance is called

decreasing term insurance.

As an alternative to the Original Medicare Plan, beneficiaries can elect to enroll in private health insurance plans that cover all services that the Original Medicare Plan covers except hospice care. These private health insurance plans that are an alternative to the Original Medicare Plan are called

Medicare Advantage Plans.

All of the following are reasons why employers self-insure medical expense plans EXCEPT

to transfer the risk of medical expenses to another party.

Which of the following statements about high deductible health insurance plans is (are) true? I. Coverage under a high deductible health plan is necessary to establish a qualified health savings account (HSA). II. High deductible health plans provide a maximum limit on annual out-of-pocket expenses.

both I and II

Which of the following statements is (are) true with respect to the Social Security earnings test? I. The earnings test does not apply to dividends, interest, and rental income. II. The earnings test does not apply to work earnings for those individuals who have reached the full retirement age under Social Security.

both I and II

Marion owns substantial financial assets. She was surprised that she qualified for Social Security retirement benefits when she retired because of her high investment income. What characteristic of social insurance programs is Marion overlooking with respect to her Social Security retirement benefits?

Social insurance benefits are not means tested.

The Affordable Care Act has provisions that improve the quality of health care and lower costs. All of the following are examples of these provisions EXCEPT

increasing the number of medical specialists and reducing the number of primary care physicians.

All of the following are circumstances under which withdrawals from a traditional IRA may be made prior to age 59.5 without incurring a substantial penalty EXCEPT

The withdrawal is used to pay living expenses after unemployment insurance benefits cease.

What is the length of the readjustment period which is considered when the needs approach is used to determine the amount of life insurance to own?

1 to 2 years

All of the following statements describe the flexibility available to the owner of a universal life insurance policy EXCEPT

Policy loans are permitted on an interest-free basis.

Which of the following statements is (are) true with regard to a qualified longevity annuity contract (QLAC)? I. A lump sum premium is paid to provide income at some future date. II. A QLAC can be purchased to address the risk of exhausting retirement income from an employer-sponsored qualified retirement plan.

both I and II

Which statement is true regarding the advanced premium tax credits for individuals and families under the Affordable Care Act?

The tax credit is based on income and is designed to limit the amount spent on health insurance premiums to make the insurance affordable.

Which of the following is a common investment mistake that many retirement plan participants make?

panicking when stock prices fall and selling at low prices

Which of the following statements about the financing of OASDI and Medicare is (are) true? I. There is a maximum taxable wage base for OASDI. II. There is a maximum taxable wage base for Part A of Medicare.

I only

Jessica is an agent for LMN Life Insurance Company. She met with Brad, who was interested in purchasing life insurance. Jessica explained the various uses of life insurance, including income for Brad's wife during the 1- or 2-year period following Brad's death. This period is known as the

readjustment period.

Which of the following statements about disability and disability income insurance is (are) true? I. Most disability income policies replace 100 percent of gross earnings. II. The probability of being disabled before age 65 is much higher than commonly believed.

II only

Under one type of HMO, the physicians are employees of the HMO and are paid a salary and sometimes an incentive bonus to hold down costs. This type of HMO is called a(n)

staff model.

Dirk required surgery for a kidney impairment. His total bill for medical services was $50,000. Dirk has a medical expense policy with a $1,000 calendar-year deductible and a $5,000 annual out-of-pocket limit. His coinsurance percentage is 20 percent. The out-of-pocket limit applies to coinsurance only. Assuming this surgery and hospitalization were the first medical care that Dirk received during the year and that all of the hospital services were eligible for coverage under the policy, how much of the $50,000 bill will the insurer pay?

$44,000

Which of the following statements is (are) true with respect to variable annuities? I. The price at which accumulation units can be purchased fluctuates during the funding period. II. The value of annuity units fluctuates over time.

both I and II

Which of the following statements about group short-term disability income plans is true?

Most plans provide benefits for total disabilities only.

Which of the following statements is (are) true with respect to profit-sharing plans? I. There is no limit on the amount that an employer can contribute annually to an employee's account under a profit sharing plan. II. Profit sharing plans offer greater funding flexibility for employers than under other qualified plans.

II only

Ann is considering the purchase of a life insurance policy with these characteristics: flexible premium payments, the insurance and savings components are separate, the interest rate credited to the cash value is tied to a changing market interest rate but a minimum interest rate is guaranteed, and a monthly administrative fee is charged. Ann is considering buying

universal life insurance.

Which of the following statements about withdrawals from Section 401(k) plans is (are) true? I. The penalty tax does not apply to hardship withdrawals. II. Withdrawals may be made without penalty at age 59.5 or older.

II only

High deductible group health insurance plans have all of the following characteristics EXCEPT

low coverage limits.

Frank is doing some life insurance planning. A financial advisor said, "be sure to consider Social Security when examining sources of funds available for family support if you die." The financial advisor was referring to which Social Security benefit?

survivor benefits

All of the following persons are eligible for survivor benefits under Social Security EXCEPT

a surviving brother or sister, age 60 or older.

All of the following are historical reasons for the increase in health care expenditures in the U.S. EXCEPT

universal health insurance coverage.

Which of the following statements is (are) true concerning a joint-and-survivor annuity? I. Under this annuity, payments begin after the first annuitant dies. II. This annuity is often selected by married couples.

II only

Under the Affordable Care Act, which of the following statements are true? I. Health insurers cannot use pre-existing conditions exclusions. II. Health insurers cannot impose annual benefit limits and lifetime benefit limits.

both I and II

Which of the following statements about the medical insurance (Part B) portion of Medicare is (are) true? I. Participation in Part B of Medicare is voluntary. II. It is provided at no cost to anyone who is fully insured under Medicare.

I only

Which of the following statements about group short-term disability income plans is true? (version 2)

The amount of disability income benefits typically is equal to some percentage of a worker's normal earnings.

Which of the following is a reason that social insurance programs exist?

to provide a base of economic security