Insurance Planning for Financial Advisors Flashcards
7 cards from real Financial Advisor practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Insurance Planning for Financial Advisors flashcards as text
A client owns a $500,000 permanent life insurance policy with a $120,000 cash value. If the policy lapses, what is the tax consequence?
Answer: Ordinary income tax on the gain above basis in the policy
When a permanent life policy lapses with a gain (cash value exceeds premiums paid), the gain is taxable as ordinary income.
Which type of annuity rider guarantees the owner can withdraw a set percentage of the benefit base annually regardless of account performance?
Answer: Guaranteed Minimum Withdrawal Benefit (GMWB)
A GMWB rider guarantees systematic withdrawals of a specified percentage of the benefit base even if the account value drops to zero.
A 45-year-old client wants long-term care coverage but is concerned about losing premiums if they never use benefits. Which product best addresses this concern?
Answer: A linked-benefit (hybrid) life/LTC policy
Hybrid life/LTC policies provide a death benefit if LTC is never used, so premiums are not 'lost' unlike traditional stand-alone LTC policies.
Under the HIPAA provisions, which statement about long-term care insurance is CORRECT?
Answer: Tax-qualified LTC premiums may be deductible as a medical expense subject to AGI limits
HIPAA established tax-qualified LTC policies whose premiums are deductible as medical expenses to the extent they exceed 7.5% of AGI, subject to age-based limits.
A business owner wants key-person life insurance. How are premiums and death benefits typically treated for a C-corporation?
Answer: Premiums are not deductible; death benefit is generally received income-tax-free
Key-person life insurance premiums paid by a C-corporation are not deductible, but the death benefit proceeds are generally received income-tax-free by the corporation.
Which disability income policy provision requires the insured to accept a lower-paying job within their general occupation before benefits are paid?
Answer: Any-occupation definition
The any-occupation definition pays benefits only if the insured cannot perform any occupation for which they are reasonably suited, making it the most restrictive definition.
A client's whole life policy has a $200,000 face amount, $40,000 cash value, and $15,000 in outstanding policy loans. What is the net death benefit payable to the beneficiary?
Answer: $185,000
Outstanding policy loans plus accrued interest reduce the death benefit paid, so the beneficiary receives $200,000 minus the $15,000 loan = $185,000.