SCLAHIP - South Carolina Life Accident and Health Insurance Producer Exam

Question 21: Rather than taking a lump sum, a beneficiary leaves the life insurance proceeds with the insurer under an interest-only settlement option and receives a monthly payment. Which portion of what she receives each month must be reported as taxable ordinary income?

Only the interest earned on the proceeds

The entire monthly payment is taxable

None of the monthly payment is taxable

Only the original face amount portion

Question 22: A universal life policyowner drops a large extra deposit into her contract in its fourth policy year, pushing total premiums paid past the cumulative limit for that year. Which consequence follows for the contract under federal tax law?

The policy loses its death benefit

The excess premium is always forfeited

It becomes a modified endowment contract

The policy converts to an annuity

Question 23: A participating whole life policy pays its owner an annual dividend, and the owner takes it in cash. She asks why the insurer does not report that payment to her as income. Which of the following explains the federal tax treatment of the dividend?

It is a nontaxable return of premium

It is taxable ordinary income annually

It is a taxable capital distribution

It is taxable when the policy matures

Question 24: An indexed annuity contract provides that only a stated share of the underlying index gain will be used in figuring the interest credited for the year, and the rest of the gain is disregarded. Which contract feature sets that share?

The cap

The participation rate

The guaranteed minimum floor

The assumed interest rate

Question 25: A policy was classified as a modified endowment contract three years ago because premiums came in too fast. The owner has since paid nothing at all into it and asks whether the contract can shed that label. Which statement is correct?

Status ends after seven policy years

Status ends when premiums stop entirely

Status ends once cost basis is recovered

The contract remains a modified endowment contract

Question 26: A sixty-two year old worker tells a producer that her biggest financial worry is running out of savings if she lives into her nineties. Which of the following products is designed specifically to address that risk by paying income for as long as she lives?

A life annuity

Decreasing term life insurance

A twenty-year level term policy

An accidental death benefit rider

Question 27: A small corporation contributes generously to its employees' retirement accounts in strong years and skips the contribution entirely when earnings are weak, with the board deciding the amount annually. Which of the following qualified plans works this way?

A defined benefit pension plan

A SIMPLE retirement plan

A profit-sharing plan

A tax-sheltered annuity plan

Question 28: A deferred annuity contract states that money taken out in the first year of the contract is reduced by ten percent, in the second year by nine percent, and by a smaller share in each later year. Which contract feature is this schedule?

A surrender charge schedule

A market value adjustment

A guaranteed minimum interest rate

A free withdrawal provision

Question 29: A plan document tells participants exactly how much the employer and the employee may put into each account every year but makes no promise at all about the size of the eventual retirement income. Which description fits this arrangement?

A defined benefit pension plan

A nonqualified deferred compensation plan

A defined contribution plan

A tax-sheltered annuity for public schools

Question 30: A widow chooses an annuity payout that will pay her for life and, if she dies within the first twenty years, will continue the same payments to her son until that twenty-year span ends. Which payout option has she selected?

Life with period certain

Straight life income

Joint life annuity

Fixed amount option

Question 31: An employee tells a producer that his employer's retirement plan promises him a monthly pension equal to a set percentage of his final salary, based on his years of service. Which type of plan is the employee describing?

A defined contribution plan

A profit-sharing plan

A defined benefit plan

A simplified employee pension plan

Question 32: A policyowner borrows against the cash value of a whole life policy that is not a modified endowment contract, taking an amount larger than the premiums he has paid so far. The policy stays in force. How is that loan treated for income tax?

Taxable as ordinary income when borrowed

Taxable only above the policy dividends

Taxable at the insured's death instead

Not taxable while the policy remains active

Question 33: An employee directs part of each paycheck into her employer's 401k plan and notices that her taxable wages for the year are lower as a direct result. Which of the following explains what happens to those elective deferrals?

They are taxed now and later

They are contributed before income taxes

They are treated as employer contributions

They are deposited after taxes are withheld

Question 34: Federal tax law applies a specific measurement to decide whether a life insurance policy has been funded so quickly that it should be treated as a modified endowment contract. Which of the following is the name of that measurement?

The endowment maturity test

The annuitization test

The accumulation value test

The seven-pay test

Question 35: A policyowner takes a partial withdrawal from a universal life policy that has never failed the seven-pay test. He is surprised that none of the money is taxable even though the contract holds substantial gain. Which rule explains this result?

Last-in-first-out treatment of policy withdrawals

The exclusion ratio applied to withdrawals

First-in-first-out treatment of policy withdrawals

The seven-pay limit refund of premium

Question 36: An investor buys an existing life insurance policy from its owner for cash, continues paying the premiums, and collects the death benefit years later. He is startled to learn part of that benefit is taxable. Which federal tax rule produced that outcome?

The seven-pay test

The transfer-for-value rule

The exclusion ratio

The incidents of ownership rule

Question 37: A sixty-one-year-old opened his first Roth individual retirement account only three years ago and now wants to withdraw the earnings completely free of federal income tax. Which of the following correctly explains whether that distribution qualifies for tax-free treatment?

No, the five-year requirement is unmet

Yes, because he is past fifty-nine

Yes, Roth earnings are always tax free

No, Roth earnings are always taxable

Question 38: An insured kept the right to change the beneficiary and to borrow against the cash value of his own policy until he died. His executor learns the death benefit will be counted in his gross estate. Which principle explains that inclusion?

The proceeds lost income tax exemption

The policy failed the seven-pay test

The beneficiary was a family member

He held incidents of ownership

Question 39: A firm with two hundred workers wants a retirement arrangement with far less paperwork than a traditional qualified plan, under which the company deposits money directly into an individual retirement account owned by each employee. Which plan matches that description?

A SIMPLE plan

A simplified employee pension plan

A defined benefit pension plan

A Keogh plan

Question 40: A retiree receiving a level monthly payment from a fixed annuity notices that the same check buys less at the grocery store each passing year, although the dollar amount has never changed. Which weakness of fixed annuities does this illustrate?

Exposure to separate account losses

Loss of the guaranteed minimum rate

Loss of the annuitant's contract rights

Loss of purchasing power during inflation

SCLAHIP South Carolina Life Accident and Health Insurance Producer Exam - Set 3 - Part 2

Question 21: Rather than taking a lump sum, a beneficiary leaves the life insurance proceeds with the insurer under an interest-only settlement option and receives a monthly payment. Which portion of what she receives each month must be reported as taxable ordinary income?

Question 22: A universal life policyowner drops a large extra deposit into her contract in its fourth policy year, pushing total premiums paid past the cumulative limit for that year. Which consequence follows for the contract under federal tax law?

Question 23: A participating whole life policy pays its owner an annual dividend, and the owner takes it in cash. She asks why the insurer does not report that payment to her as income. Which of the following explains the federal tax treatment of the dividend?

Question 24: An indexed annuity contract provides that only a stated share of the underlying index gain will be used in figuring the interest credited for the year, and the rest of the gain is disregarded. Which contract feature sets that share?

Question 25: A policy was classified as a modified endowment contract three years ago because premiums came in too fast. The owner has since paid nothing at all into it and asks whether the contract can shed that label. Which statement is correct?

Question 26: A sixty-two year old worker tells a producer that her biggest financial worry is running out of savings if she lives into her nineties. Which of the following products is designed specifically to address that risk by paying income for as long as she lives?

Question 27: A small corporation contributes generously to its employees' retirement accounts in strong years and skips the contribution entirely when earnings are weak, with the board deciding the amount annually. Which of the following qualified plans works this way?

Question 28: A deferred annuity contract states that money taken out in the first year of the contract is reduced by ten percent, in the second year by nine percent, and by a smaller share in each later year. Which contract feature is this schedule?

Question 29: A plan document tells participants exactly how much the employer and the employee may put into each account every year but makes no promise at all about the size of the eventual retirement income. Which description fits this arrangement?

Question 30: A widow chooses an annuity payout that will pay her for life and, if she dies within the first twenty years, will continue the same payments to her son until that twenty-year span ends. Which payout option has she selected?

Question 31: An employee tells a producer that his employer's retirement plan promises him a monthly pension equal to a set percentage of his final salary, based on his years of service. Which type of plan is the employee describing?

Question 32: A policyowner borrows against the cash value of a whole life policy that is not a modified endowment contract, taking an amount larger than the premiums he has paid so far. The policy stays in force. How is that loan treated for income tax?

Question 33: An employee directs part of each paycheck into her employer's 401k plan and notices that her taxable wages for the year are lower as a direct result. Which of the following explains what happens to those elective deferrals?

Question 34: Federal tax law applies a specific measurement to decide whether a life insurance policy has been funded so quickly that it should be treated as a modified endowment contract. Which of the following is the name of that measurement?

Question 35: A policyowner takes a partial withdrawal from a universal life policy that has never failed the seven-pay test. He is surprised that none of the money is taxable even though the contract holds substantial gain. Which rule explains this result?

Question 36: An investor buys an existing life insurance policy from its owner for cash, continues paying the premiums, and collects the death benefit years later. He is startled to learn part of that benefit is taxable. Which federal tax rule produced that outcome?

Question 37: A sixty-one-year-old opened his first Roth individual retirement account only three years ago and now wants to withdraw the earnings completely free of federal income tax. Which of the following correctly explains whether that distribution qualifies for tax-free treatment?

Question 38: An insured kept the right to change the beneficiary and to borrow against the cash value of his own policy until he died. His executor learns the death benefit will be counted in his gross estate. Which principle explains that inclusion?

Question 39: A firm with two hundred workers wants a retirement arrangement with far less paperwork than a traditional qualified plan, under which the company deposits money directly into an individual retirement account owned by each employee. Which plan matches that description?

Question 40: A retiree receiving a level monthly payment from a fixed annuity notices that the same check buys less at the grocery store each passing year, although the dollar amount has never changed. Which weakness of fixed annuities does this illustrate?

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