FREE Chartered Life Underwriter (CLU) Individual Life Insurance Planning Questions and Answers

Question 1

A 45-year-old business owner wants to implement a plan to ensure the orderly transfer of the business to the two other partners in the event of death.
Which of the following life insurance arrangements is most suitable for this purpose?

Accepted Answer

A cross-purchase buy-sell agreement funded with life insurance.

Answer

A key person life insurance policy.

Answer

A split-dollar life insurance plan.

Answer

A group term life insurance policy for all employees.

Question 2

Which of the following methods for determining the amount of life insurance needed is most comprehensive and considers the insured's specific financial obligations, future income needs of survivors, and existing assets?

Accepted Answer

The Capital Needs Analysis approach.

Answer

The Human Life Value approach.

Answer

The Multiple-of-Income approach.

Answer

The DIME (Debt, Income, Mortgage, Education) method.

Question 3

A client has a permanent life insurance policy with a significant cash value. Under which circumstance would a portion of the withdrawn cash value be subject to income tax?

Accepted Answer

When the amount withdrawn exceeds the policy's cost basis (total premiums paid).

Answer

When the total amount withdrawn is less than the total premiums paid into the policy.

Answer

When the policyholder takes a policy loan that is never repaid.

Answer

When the cash value is used to pay the policy's premiums.

Question 4

A corporation purchases a life insurance policy on its CEO to protect the company from financial hardship resulting from the CEO's unexpected death. What is the proper term for this type of policy arrangement?

Accepted Answer

Key Person Insurance

Answer

Endorsement Split-Dollar

Answer

Entity-Purchase Buy-Sell

Answer

Executive Bonus Plan

Question 5

In a split-dollar life insurance arrangement under the collateral assignment method, who is typically the owner of the life insurance policy?

Accepted Answer

The employee

Answer

The employer

Answer

A trust established for the employee's beneficiaries

Answer

The insurance company

Question 6

Regarding the federal income taxation of life insurance, which of the following statements is generally TRUE?

Accepted Answer

The death benefit paid in a lump sum to a named beneficiary is received income tax-free.

Answer

Premiums paid by an individual for a personal life insurance policy are tax-deductible.

Answer

The internal growth of a policy's cash value is taxed annually as ordinary income.

Answer

If a policy is surrendered, the entire cash surrender value is treated as taxable income.

A 45-year-old business owner wants to implement a plan to ensure the orderly transfer of the business to the two other partners in the event of death.Which of the following life insurance arrangements is most suitable for this purpose?

A 45-year-old business owner wants to implement a plan to ensure the orderly transfer of the business to the two other partners in the event of death.
Which of the following life insurance arrangements is most suitable for this purpose?