Deck 12: Professional Financial Planning

Question 1

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

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

Answer 1

B

Question 2

Federal Estate Taxes must be paid:

A)within 9 months of a persons death
B)in cash
C)only on amounts exceeding $600,000
D)a & b only

Answer 2

D

Question 3

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

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

Answer 3

D

Question 4

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

A)burial fund
B)fund to cover the equity in the home
C)college education fund
D)debt retirement fund

Question 5

Purchasing life insurance on the homemaker

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" life style
D)is very necessary when the homemaker has no minor children

Question 6

Which one of the following is not usually involved in the sale of life insurance on college campuses?

A)whole life insurance
B)free life insurance for the first year
C)whole life insurance, a small down payment and a loan of the 1st year's premium
D)selling the applicant on insurability issues

Question 7

Mr.& Mrs.Clinton are in their 80's. They have saved millions of dollars and need to begin taking steps to minimize their estate tax liability. They have asked you for advice,and you tell them,"Give each of your children,grandchildren,and great-granchildren a cash gift to start spending down your estate. You can do this once a year,and you'll have no gift tax liability. Just make sure that you give each person no more than ____________."

A)$10,000
B)$11,000
C)$15,000
D)$22,000

Question 8

The text mentioned several reasons for purchasing "business" life insurance.Which of the following reasons was NOT mentioned?

A)business continuation
B)fringe benefits
C)key person insurance
D)protection from creditor's claims

Question 9

Sound financial planning requires a trade off between

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

Question 10

A person holding the title of "Certified Financial Planner" must have

A)completed a 5-course program
B)passed a certification examination
C)spent 5 years in the business of financial planning
D)a & b above

Question 11

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

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 12

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

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 13

The main financial problem associated with the early adult years is:

A)compensating for loss of income to the family in the event of a premature death of main wage earner
B)loss of retirement income in the event of a premature death of main wage earner
C)the problem of paying estate taxes
D)providing life long income for the children

Question 14

Which of the following statements is false?

A)People with a small amount of assets do not typically need a will
B)A parent can use a will to appoint a guardian for his/her children
C)A valid will can minimize probate problems
D)A legally-enforceable will must be made when a person is of sound mine

Question 15

All of the following are typical business uses of life insurance except:

A)protect the business against loss caused by the death of a key person
B)provide a means of rewarding and retaining valuable employees
C)provide severance pay to employees when jobs are terminated
D)protect the value of the partnership at the death of an owner/insured

Question 16

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

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 17

What year is the Federal Estate tax scheduled to end?

A)2010
B)2011
C)2015
D)never

Question 18

When a person dies,the gross estate is

A)taxed at the rate of 50%
B)taxed only if made up of real property valued at more than $250,000
C)subject to the federal estate and gift tax
D)not taxed if death bed gifts are made to eligible children

Question 19

Which of the following is true?

A)The government discourages retirement saving by providing no tax incentives
B)To discourage the pre-retirement withdrawal of tax advantaged retirement savings plans, the government imposes a 20% early withdrawal penalty
C)To discourage the pre-retirement withdrawal of tax advantaged retirement savings plans, the government imposes a 10% early withdrawal penalty on withdrawals made before age 62
D)If a 40-year old person becomes disabled, she may be allowed to withdraw tax advantaged savings without paying a tax penalty

Question 20

When an insured dies with an incident of ownership in a life insurance contract

A)the face amount is included in the gross estate
B)the face amount is not taxed at all due to a loophole in estate tax laws
C)only the cash value at death is included in the estate
D)onl 2 is taxed due to the spouse's assumed half ownership

Question 21

Which of the following is one of the three largest financial problems facing middle income Americans?

A)financing a teenager's automobile
B)financing college
C)financing the income needs of a surviving spouse with children
D)financing the early working years

Question 22

With respect to a trust fund,what is the role of the trustee?

A)provide the initial funding for the trust
B)receive the benefits of the trust
C)provide management of the trust's property
D)determine the beneficiary of the trust

Question 23

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

Question 24

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

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

Question 25

The federal estate tax will take a greater percentage of a large estate as well as a larger number of dollars.

Question 26

There is never any income tax when an individual surrenders his life insurance contract.

Question 27

Which of the following needs for life insurance would be considered permanent?

A)education fund for surviving children
B)income fund for surviving children
C)debt-retirement fund
D)burial fund

Question 28

Grandpa Jones is a divorced elderly man (and quite a catch according to the ladies at the retirement home). He has a lot of money and would like to minimize his estate tax liability as much as possible. He has decided to give each of his children,grandchildren,and great-grandchildren a cash gift. How much can he give to each child and avoid gift tax liability?

A)$10,000
B)$11,000
C)$15,000
D)$22,000

Question 29

Financing retirement is a challenge for many Americans. Which of the following is not a reason that retirement planning has become more challenging?

A)many employers no longer fund retirement programs for their employees
B)many employees have complicated but generous health insurance plans provided by their employer
C)Social Security has increased the normal retirement age and lowered benefit targets
D)Increases in longevity put a greater burden on retirement savings

Question 30

The maximum estate tax rate is 58

Question 31

The needs based approach should be used to determine whether life insurance is needed and how much.

Question 32

Life insurance policy owners have several ways by which to access the cash savings in their life insurance policies while the insured is still alive. Which of the following is not one of those ways?

A)invest cash value in the insurer's stock and then receive shareholder dividends
B)participating policy dividends
C)withdraw the cash value
D)take a lump sum settlement if the insured is terminally ill

Question 33

In a key?employee insurance purchase,the business should be the owner and the beneficiary of the policy.

Question 34

The maximum gift a person can give to someone without incurring gift tax liability is $15,000.

Question 35

With five owners of a business,an entity purchase plan usually makes more sense than a cross?purchase plan.

Question 36

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

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

Question 37

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

Question 38

The use of life insurance for estate preservation is needed only by the very wealthy.

Question 39

The trustee of a trust fund is responsible for determining the beneficiary of the fund's assets.

Question 40

"Probate" is best-defined as:

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 41

Explain what a will is.What happens when a person dies without a valid will?

Question 42

What are the main financial planning problems encountered in the "early adult" years?

Question 43

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

Question 44

A terminally ill insured may be able to withdraw life insurance death benefits on tax-free basis while still alive.

Question 45

The present value of an education fund increases as one gets closer to the college years.

Question 46

For most people the greatest need for life insurance is to retire the debts of the primary wage earner.

Question 47

The early adult years are mainly characterized by pre?retirement planning.

Question 48

The needs?based approach is one technique for calculating how much life insurance one needs. Explain briefly the method for calculating this amount.