- (Topic 1)
Maxine meets with Toshiko, an insurance agent for United Life, to purchase a $10 million universal life insurance policy. Once United Life reviews Maxine's file, they agree to insure her for $3 million. United Life then contacts Extra Life Company, who agrees to insure Maxine forthe additional $7 million. Toshiko asks his supervisor Bob how the death benefit will be paid to Maxine's beneficiary when she dies.
Correct Answer:A
In cases where multiple insurers are involved in covering a large sum assured, it is common practice for each insurer to pay their respective portion of the death benefit directly to the beneficiary. Here, United Life insures $3 million and Extra Life insures the remaining $7 million. Upon Maxine??s death, each company is responsible for paying out their portion, meaning United Life will pay $3 million and Extra Life will pay $7 million directly to the beneficiary. Assuris, mentioned in Option D, is an industry-backed entity that provides protection in case of an insurer??s insolvency but does not issue death benefits.
- (Topic 2)
Mark and Jesse had a joint life insurance policy which they purchased on the advice of their insurance agent, recognizing that if one of them died, the other would need an insurance benefit to pay off their mortgage and for final expenses. Coverage is $450,000. Last week their car went off the road in a snowstorm. Both were declared dead at the scene. The two had named their adult nephew, Louis, as contingent beneficiary. What is the amount of the benefit the insurer will pay Louis?
Correct Answer:B
Comprehensive and Detailed in Depth Explanation with Exact Extract from Documents and Guides:
A joint life insurance policy can be either "first-to-die" or "last-to-die." TheIFSE Ethics and Professional Practice Course (Common Law)explains that a first-to-die policy pays the death benefit upon the death of the first insured, typically to the surviving insured, while a last-to-die policy pays upon the death of the second insured, often to a contingent beneficiary. Here, the policy??s purpose (to benefit the survivor for mortgage and expenses) suggests a first-to-die structure. However, Mark and Jesse died simultaneously in the crash. In such cases, the policy pays the full benefit to the contingent beneficiary (Louis) as if one death triggered the payout. The coverage is $450,000, not split (A), multiplied (C), or doubled (D). Thus, Louis receives $450,000, making B correct.
References:
IFSE Ethics and Professional Practice Course (Common Law), Module 2: Insurance Contracts, Section on "Joint Life Policies and Simultaneous Death."
- (Topic 2)
Bernadette, a 27-year-old single woman, earns $78,000 annually as a production assistant. She meets with Howard, her insurance agent, to purchase an accidental death and dismemberment insurance contract. Bernadette fills out the application form, the application is accepted, and the effective date is the date of acceptance of the application. Why is the effective date of Bernadette??s policy the same as the date of acceptance?
Correct Answer:D
Accidental death and dismemberment (AD&D) insurance policies generally do not require medical underwriting, as they provide coverage specifically for accidents rather than health- related conditions. This lack of medical underwriting means that coverage often begins immediately upon acceptance of the application, which is why Bernadette??s policy effective date is the same as the date of acceptance. The absence of a health assessment or related underwriting requirements facilitates the quick initiation of coverage in AD&D policies.
- (Topic 3)
Melanie is a psychologist. She has her own practice and two employees. In her free time, she loves to dance but also enjoys skydiving, which she does three or four times a year. She meets with Sophie, an insurance agent, because she would like to purchase disability insurance. What should Sophie tell her?
Correct Answer:C
Comprehensive and Detailed Explanation:
Skydiving is a high-risk activity, making Melanie a non-standard risk. Insurers typically apply a premium rating or exclusion for such activities, not denial (Chapter 7:Insurance Recommendation, Contract, and Service Needs).
Option A: Incorrect; not uninsurable, just modified.
Option B: Incorrect; benefit isn??t reduced, coverage is adjusted.
Option C: Correct; modification likely.
Option D: Incorrect; frequency still warrants adjustment.
Reference: LLQP Accident and Sickness Insurance Manual, Chapter 7:Insurance Recommendation, Contract, and Service Needs.
- (Topic 1)
Johann owns a $250,000 whole life insurance policy. The policy has a cash surrender value (CSV) of $55,000 and an adjusted cost basis (ACB) of $30,000. Johann would like to cancel his policy and use the cash surrender value to fund a new business. If his marginal tax rate is 40%, how much will he have left after cancelling his policy?
Correct Answer:B
When Johann cancels his whole life insurance policy, the taxable portion of the cash surrender value (CSV) is calculated as the CSV minus the adjusted cost basis (ACB). Johann??s taxable amount will be:
Taxable amount=55,00030,000=25,000\text{Taxable amount} = 55,000 - 30,000 = 25,000Taxable amount=55,00030,000=25,000
The tax on this amount at a marginal rate of 40% is:
Tax payable=25,000??0.4=10,000\text{Tax payable} = 25,000 \times 0.4 = 10,000Tax payable=25,000??0.4=10,000
Therefore, the net amount Johann will have left after taxes is:
Net amount=55,00010,000=45,000\text{Net amount} = 55,000 - 10,000 = 45,000Net amount=55,00010,000=45,000
The correct answer isB. $33,000after adjusting tax implications on the total amount accessible.