Question 1

Which of the following statements is false concerning the taxation of life insurance?

Accepted Answer

A)  Beneficiaries receive death benefits free from any federal taxation. 
B)  The value of the life insurance death benefit is always included in the insured's estate. 
C)  If a non-insured/owner dies, the value included in the decedent's estate is approximately the cash value of the insurance contract. 
D)  Interest earned on settlement proceeds is taxable. 
A)  Beneficiaries receive death benefits free from any federal taxation. 
B)  The value of the life insurance death benefit is always included in the insured's estate. 
C)  If a non-insured/owner dies, the value included in the decedent's estate is approximately the cash value of the insurance contract. 
D)  Interest earned on settlement proceeds is taxable. B

Question 2

Which formula shows the needs based method of estimating the amount of life insurance needed?

Accepted Answer

A)  Life insurance needed = present value of future income 
B)  Life insurance needed = burial + education - food - shelter 
C)  Life insurance needed = income + social security - savings 
D)  Life insurance needed = total needs - existing assets to meet the needs 
A)  Life insurance needed = present value of future income 
B)  Life insurance needed = burial + education - food - shelter 
C)  Life insurance needed = income + social security - savings 
D)  Life insurance needed = total needs - existing assets to meet the needs D

Question 3

Why would a company favor a cross-purchase plan over an entity plan?

Accepted Answer

A)  Tax benefits 
B)  A cross-purchase plan has fewer policies 
C)  When they have a lot of so-called "key employees" 
D)  When a buy-and-sell agreement is not feasible 
A)  Tax benefits 
B)  A cross-purchase plan has fewer policies 
C)  When they have a lot of so-called "key employees" 
D)  When a buy-and-sell agreement is not feasible A

Question 4

Which of the following would not be considered a need in the needs-based approach?

Accepted Answer

A)  Burial fund 
B)  Fund to cover the equity in the home 
C)  College education fund 
D)  Debt retirement fund 
A)  Burial fund 
B)  Fund to cover the equity in the home 
C)  College education fund 
D)  Debt retirement fund

Question 5

A business firm may utilize life insurance to protect against loss caused by the death of:

Accepted Answer

A)  a key employee 
B)  a limited partner, not employed by the firm 
C)  a main supplier 
D)  a stockholder in a public corporation 
A)  a key employee 
B)  a limited partner, not employed by the firm 
C)  a main supplier 
D)  a stockholder in a public corporation

Question 6

The best financial plan for financing a child's college education requires:

Accepted Answer

A)  a savings plan 
B)  a 401(k) plan 
C)  premature death protection 
D)  both A and C 
A)  a savings plan 
B)  a 401(k) plan 
C)  premature death protection 
D)  both A and C

Question 7

Why would a company favor an entity plan over a cross-purchase plan?

Accepted Answer

A)  Tax benefits 
B)  An entity plan has fewer policies 
C)  When they have a lot of so-called "key employees" 
D)  When a buy-and-sell agreement is not feasible 
A)  Tax benefits 
B)  An entity plan has fewer policies 
C)  When they have a lot of so-called "key employees" 
D)  When a buy-and-sell agreement is not feasible

Question 8

To properly handle the orderly transfer of business ownership at death, it is necessary to have:

Accepted Answer

A)  an unfunded buy-and-sell agreement 
B)  a life insurance contract to fund the purchase and a buy-and-sell agreement 
C)  a verbal understanding of the valuation method 
D)  a verbal commitment of the heirs to sell the business 
A)  an unfunded buy-and-sell agreement 
B)  a life insurance contract to fund the purchase and a buy-and-sell agreement 
C)  a verbal understanding of the valuation method 
D)  a verbal commitment of the heirs to sell the business

Question 9

The Federal Estate Tax is a flat percent on all assets owned at death.

Accepted Answer

A) True 
 B)False

Question 10

Sound financial planning requires a trade off between:

Accepted Answer

A)  risk and return alternatives 
B)  gratification and savings 
C)  investment and saving alternatives 
D)  fees and returns 
A)  risk and return alternatives 
B)  gratification and savings 
C)  investment and saving alternatives 
D)  fees and returns

Question 11

The fact that women live longer than men has the following impact on planning for retirement:

Accepted Answer

A)  they require income for a longer period of time 
B)  life insurance on a husband should take this fact into account 
C)  they require more health insurance 
D)  All of the above are correct. 
A)  they require income for a longer period of time 
B)  life insurance on a husband should take this fact into account 
C)  they require more health insurance 
D)  All of the above are correct.

Question 12

Which of the following is not a task of a financial planner?

Accepted Answer

A)  Help their clients develop financial goals for the future 
B)  Collect data about the various aspects of the financial situation of their clients 
C)  Decide on the implementation of a financial plan 
D)  Educate their clients with respect to the optimal financial plan 
A)  Help their clients develop financial goals for the future 
B)  Collect data about the various aspects of the financial situation of their clients 
C)  Decide on the implementation of a financial plan 
D)  Educate their clients with respect to the optimal financial plan

Question 13

Which of the following is not an issue when planning for retirement?

Accepted Answer

A)  Estimating the age of retirement 
B)  Estimating the income of the children, if any 
C)  Estimating the age at death 
D)  Estimating expenses during retirement 
A)  Estimating the age of retirement 
B)  Estimating the income of the children, if any 
C)  Estimating the age at death 
D)  Estimating expenses during retirement

Question 14

People are more likely to purchase adequate amounts of life than property insurance.

Accepted Answer

A) True 
 B)False

Question 15

Choose the answer that best describes the purpose of a Section 529 Plan:

Accepted Answer

A)  funding retirement with tax-deferred dollars 
B)  funding retirement with completely tax-free dollars 
C)  funding a college education 
D)  funding retirement 
A)  funding retirement with tax-deferred dollars 
B)  funding retirement with completely tax-free dollars 
C)  funding a college education 
D)  funding retirement

Question 16

"Probate" is best-defined as:

Accepted Answer

A)  choosing investments for a trust fund at death 
B)  selecting the beneficiary of a trust fund after death of the donor 
C)  administration of an estate following death of an individual 
D)  supervising the transfer of property at death 
A)  choosing investments for a trust fund at death 
B)  selecting the beneficiary of a trust fund after death of the donor 
C)  administration of an estate following death of an individual 
D)  supervising the transfer of property at death

Question 17

Which of the following is not a business use of life insurance?

Accepted Answer

A)  To protect a business against loss caused by the death of a key person 
B)  To provide a means of rewarding and retaining valuable personnel 
C)  To lower business losses when an employee is fired 
D)  To provide some amount of life insurance to employees 
A)  To protect a business against loss caused by the death of a key person 
B)  To provide a means of rewarding and retaining valuable personnel 
C)  To lower business losses when an employee is fired 
D)  To provide some amount of life insurance to employees

Question 18

Why is it necessary to buy life insurance on a non-wage earning spouse?

Accepted Answer

A non-wage earning spouse can contribute

Question 19

Purchasing life insurance on the homemaker:

Accepted Answer

A)  makes no sense because the homemaker generates no income 
B)  should not be done because of the moral hazard it creates in the working spouse 
C)  makes sense in many cases due to the cost of service replacement and it would help the family maintain a "normal" lifestyle 
D)  is very necessary when the homemaker has no minor children 
A)  makes no sense because the homemaker generates no income 
B)  should not be done because of the moral hazard it creates in the working spouse 
C)  makes sense in many cases due to the cost of service replacement and it would help the family maintain a "normal" lifestyle 
D)  is very necessary when the homemaker has no minor children

Question 20

Which one of the following is not usually involved in the provision of funding for college expenses?

Accepted Answer

A)  Needs based life insurance 
B)  Life insurance trust 
C)  Section 529 plan 
D)  All of the above 
A)  Needs based life insurance 
B)  Life insurance trust 
C)  Section 529 plan 
D)  All of the above

Exam 14: Professional Financial Planning

Which of the following statements is false concerning the taxation of life insurance?

Which formula shows the needs based method of estimating the amount of life insurance needed?

Why would a company favor a cross-purchase plan over an entity plan?

Which of the following would not be considered a need in the needs-based approach?

A business firm may utilize life insurance to protect against loss caused by the death of:

The best financial plan for financing a child's college education requires:

Why would a company favor an entity plan over a cross-purchase plan?

To properly handle the orderly transfer of business ownership at death, it is necessary to have:

The Federal Estate Tax is a flat percent on all assets owned at death.

Sound financial planning requires a trade off between:

The fact that women live longer than men has the following impact on planning for retirement:

Which of the following is not a task of a financial planner?

Which of the following is not an issue when planning for retirement?

People are more likely to purchase adequate amounts of life than property insurance.

Choose the answer that best describes the purpose of a Section 529 Plan:

"Probate" is best-defined as:

Which of the following is not a business use of life insurance?

Why is it necessary to buy life insurance on a non-wage earning spouse?

Purchasing life insurance on the homemaker:

Which one of the following is not usually involved in the provision of funding for college expenses?

Introduction to Enterprise Risk Management and Insurance

Risk Identification

Risk Assessment and Pooling

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Fundamentals of Insurance

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

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