PFS Reading & Literacy Support 3

Question 1

A client struggles to understand a life insurance illustration showing 'non-guaranteed' columns. What should a PFS emphasize when explaining this document?

Accepted Answer

Non-guaranteed columns project hypothetical future values that depend on dividends or credited rates that may change

Answer

Non-guaranteed illustration columns show projections based on current non-guaranteed elements like dividends or interest credits, which the insurer may change.

Question 2

When reading a Social Security statement, a client sees 'estimated retirement benefit at age 70.' What assumption does this estimate rely on?

Accepted Answer

The client continues working and earning at their current level until age 70

Answer

SSA benefit estimates at a future age assume continued earnings at the current level through that claiming age.

Question 3

A client receives a Schedule K-1 from a partnership and does not understand what 'ordinary business income (loss)' on Line 1 means. How should a PFS explain it?

Accepted Answer

It is the partner's allocable share of the partnership's regular business income or loss, taxable as ordinary income

Answer

Line 1 of Schedule K-1 shows the partner's share of ordinary business income or loss, which flows through to the partner's individual return as ordinary income.

Question 4

A client reads their homeowner's insurance policy and finds an 'exclusion' for flood damage. What does this mean in practical terms?

Accepted Answer

The policy will not pay for losses caused by flooding; separate flood insurance is needed

Answer

An exclusion removes a specific peril from coverage, meaning the insurer has no obligation to pay for losses caused by that peril.

Question 5

A client asks what 'fiduciary duty' means after seeing the term in their investment advisory agreement. What is the most accurate explanation?

Accepted Answer

The advisor is legally obligated to act in the client's best interest at all times

Answer

A fiduciary duty requires the advisor to place the client's interests above their own and avoid conflicts of interest.

(PFS) Personal Financial Specialist Practice Test

(PFS) Personal Financial Specialist Practice Test

PFS Reading & Literacy Support 3