Retirement and Other Insurance Concepts — Texas exam
10% of the scored questions — about 8 of 80. This section is general life insurance knowledge, shared with every state's exam.
1 / 8
A business owner buys a key-person life policy on a vital executive. Three years later, the executive resigns. If the executive dies 5 years after resigning while the business maintains the policy, who receives the death benefit?
Answer and explanation
Answer: B. Because insurable interest is required only at inception, subsequent termination of the business relationship does not invalidate the policy.Source: Texas Insurance Code Chapter 1103 — § 1103.054, Inception Rule
2 / 8
A client wants survivors to receive income for thirty years and does not mind if the fund is exhausted at the end. Which approach fits?
Answer and explanation
Answer: C. Capital liquidation deliberately consumes the death benefit over a set period, so a smaller face amount supports a given income. Capital retention leaves the principal intact and needs a larger benefit.Source: NAIC Life Insurance Buyer's Guide — How much life insurance do you need: using principal and income
3 / 8
A closely held corporation funds a buy-sell agreement so that the company itself buys a deceased shareholder's stock. What is this plan called?
Answer and explanation
Answer: D. In an entity purchase the business is the owner, payer, and beneficiary of one policy on each owner, and it redeems the deceased owner's interest. Only one policy per owner is needed.Source: Internal Revenue Service — IRS Pub. 541, entity purchase and cross-purchase agreements
4 / 8
A company buys life insurance on its chief engineer to protect against the financial loss if she dies. Who is the owner, premium payer, and beneficiary?
Answer and explanation
Answer: A. In key person insurance the business applies for, owns, pays for, and is the beneficiary of the policy. The key employee is the insured and must consent to the coverage.Source: Internal Revenue Service — IRS Pub. 535, key person life insurance owned by the business
5 / 8
A corporation owns and pays for a policy on an executive's life and is also the beneficiary. When must the insurable interest exist?
Answer and explanation
Answer: B. Insurable interest in life insurance must exist when the contract is formed. A later change, such as the executive leaving the company, does not invalidate a policy validly issued.Source: NAIC Life Insurance Buyer's Guide — Insurable interest: timing requirement in life insurance
6 / 8
A fully insured worker dies leaving a spouse and a 10-year-old child. At what age will the surviving spouse's Social Security child-in-care benefit terminate if the child is not disabled?
Answer and explanation
Answer: C. Spousal child-in-care benefits stop when the youngest unmarried child reaches age 16 (though the child's benefit continues until 18/19).Source: Social Security Administration — Child-in-Care Age Limit
7 / 8
A fully insured worker dies. Which survivor is eligible for the Social Security lump-sum death payment?
Answer and explanation
Answer: D. The one-time lump-sum death payment goes to a surviving spouse who was living with the worker, or who was receiving benefits on the record. If no such spouse exists it may go to an eligible child.Source: Social Security Administration — SSA survivors benefits: lump-sum death payment eligibility
8 / 8
A planner totals a family's final expenses, mortgage balance, and income needs, then subtracts savings and Social Security benefits. Which method is being used?
Answer and explanation
Answer: C. The needs approach itemizes cash needs and continuing income needs, then subtracts existing assets and benefits. The remaining gap is the amount of life insurance required.Source: NAIC Life Insurance Buyer's Guide — How much life insurance do you need: the needs approach
All 55 retirement and other insurance concepts questions
- A wife applies for and owns a policy on her husband's life, naming their child as beneficiary. What is this arrangement called?
- After a life settlement closes, who owns the policy and who is responsible for the premiums?
- Are individual life insurance premium payments tax-deductible for personal income tax purposes?
- Because variable annuity contracts involve investment risk in underlying securities subaccounts, what licenses must an agent hold to sell variable annuities in Texas?
- Four equal partners fund a cross-purchase buy-sell agreement with individual life policies. How many policies are required?
- How are contributions and qualified distributions structured for a Roth IRA?
- How are premium payments and death benefits typically split between an employer and employee in an economic benefit split-dollar arrangement?
- How are premium payments made by an employer for employee group life insurance treated on the employer's corporate tax return?
- How does a business use the death benefit it receives from a key person policy?
- How does an entity-purchase buy-sell plan differ from a cross-purchase buy-sell plan in a multi-owner corporation?
- How is a life settlement generally taxed to a seller who is not terminally ill?
- How is annual interest or cash value growth within a permanent life insurance policy taxed while it remains inside the contract?
- If a group life insurance master policy is TERMINATED by the employer, what conversion right do employees covered for at least 5 years possess under TIC § 1131.110?
- If a policy becomes a MEC, how are loans and partial withdrawals taxed under IRC rules?
- If an employee dies during the 31-day group life conversion period BEFORE applying for individual conversion, how is the claim handled under TIC § 1131.109?
- If an employee's group life insurance coverage terminates due to termination of employment, what statutory conversion right is granted under TIC § 1131.108?
- If an employer provides an employee with $150,000 of group term life insurance coverage, how is the coverage above $50,000 taxed to the employee?
- In a business partnership with 3 partners, how many separate life insurance policies are required to fund a cross-purchase buy-sell agreement?
- In a corporate key-person life insurance arrangement, who is the policyowner, premium payor, and beneficiary?
- In a noncontributory group life insurance plan where the employer pays 100% of premiums, what employee participation percentage is required?
- Two clients need the same monthly survivor income. Why does the capital retention approach require a larger death benefit than capital liquidation?
- Under a group life insurance contract, what document evidence of coverage does each individual insured employee receive?
- Under a third-party owned policy, who may take a policy loan against the accumulated cash value?
- Under an Executive Bonus Plan (IRC Section 162), how are premium payments structured and taxed for the executive?
- Under IRC Section 79, up to what amount of employer-provided group term life insurance coverage is received completely tax-free by an employee?
- Under modern tax law (IRC § 7702), why are endowments that endow prior to age 95 no longer classified or taxed as standard life insurance?
- Under Social Security survivor benefits rules, what is the 'blackout period' for a surviving spouse?
- Under Texas Insurance Code § 1251.001 & § 1131.051, what minimum number of employees must participate in an employer-sponsored noncontributory group life insurance plan?
- Under the human life value approach, what is being measured?
- Under TIC § 1131.051, what minimum participation requirement applies to a CONTRIBUTORY group life insurance plan where employees pay part of the premium?
- What conditions must be met for a Roth IRA distribution of earnings to qualify as 100% tax-free?
- What conversion right do covered children have when reaching the age limit under a family rider?
- What disclosure document must be delivered to a consumer prior to or at the time of purchase of a variable annuity under federal securities law?
- What does it mean for a worker to be fully insured for Social Security survivor benefits?
- What happens in a life settlement transaction?
- What IRS exclusion ratio formula is used to determine the tax-free portion of non-qualified annuity payments received during annuitization?
- What IRS penalty tax applies to premature distributions taken from a Traditional IRA before age 59.5 unless a statutory exception applies?
- What is the primary tax feature of contributions made to a qualified Traditional IRA by an eligible individual?
- What tax responsibility does an employee have in an economic benefit split-dollar arrangement?
- What test determines whether a life insurance contract is classified as a Modified Endowment Contract (MEC) under IRC § 7702A?
- What type of individual policy can an employee choose when exercising a group life conversion right under TIC § 1131.108?
- When a permanent policy is surrendered for cash, how is the taxable portion of the surrender proceeds calculated?
- Which fact most clearly separates a life settlement from a viatical settlement?
- Which of these is a cash need rather than a continuing income need in a personal needs analysis?
- Who makes contributions to a Simplified Employee Pension (SEP) IRA plan, and how are they taxed?
- Why are corporate premiums paid for key-person life insurance non-deductible as business expenses for income tax purposes?
- Why do insurers generally require a higher participation percentage in a contributory group life plan than in a noncontributory plan?
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