GARY AND JUDY PARKER

PERSONAL INFORMATION AND BACKGROUND

Gary and Judy Parker live in Missouri and have been married for 19 years. They have two children, John and Julie, ages 17 and 15, respectively. The Parkers own two cars and a five-bedroom home located at 1425 Clayton Road. Gary owns an independent insurance agency, Parker Risk Management, and Judy works as the vice president for Computer Solutions, a local computer consulting firm.

Judy's mother, Sandy Thompson, was recently diagnosed with cancer and is currently living with Gary and Judy. The Parkers also have a local college student, Tim Wilson, living with them. Gary's estranged aunt, Martha Ritchey, has recently reunited with Gary after ten years.

Gary Parker

Gary is 47 years old and started Parker Risk Management (PRM) twelve years ago. Gary works as an insurance broker and has four employees working for him. He owns the building where Parker Risk Management is located. Frank Thomas, a friend of Gary's and a fellow insurance broker, recently approached Gary about combining their businesses. Frank is 55 years old and is planning to retire in ten years. Frank and Gary are currently in discussions about a buy-sell agreement. Frank's biggest concern is whether Gary will have enough money to buy the business in ten years when Frank wishes to retire. Gary is a moderately aggressive investor, while Frank is more conservative.

Judy Parker

Judy is 44 years old and has been the vice president for Computer Solutions for five years. Prior to working for Computer Solutions, Judy worked as an assistant vice president for Network Consultants. While Judy was working at Network Consultants, the company took out and paid premiums on a key person life insurance policy on Judy. Network Consultants remains the owner and beneficiary of the policy on Judy's life, but Judy has the right to buy the policy for its cash value when she retires.

Sandy Thompson

Judy's mother, Sandy, is 71 years old and has been retired for 10 years. Prior to retirement, Sandy worked at the local courthouse as a stenographer. Sandy's husband, Robert, died two months ago. Sandy will receive $500,000 from Robert's life insurance proceeds. Sandy's main concern upon Robert's death was having enough money to pay her increasing medical bills. Five months ago, Sandy was diagnosed with lung cancer. Her health is quickly declining, and the doctors have given her 18 to 24 months to live.

Tim Wilson

Tim is 22 years old. Tim is a family friend and pays $200 per month to live with the Parkers. He has been living with the Parkers for four years, although he recently notified Gary and Judy that he would be moving out because he is getting married and buying a house. Tim recently graduated from college and started his first job. Tim's salary is $27,000 per year and he is struggling with a limited budget. Tim just purchased a used car for $2,000. Tim has the minimum PAP liability limits of 25/50/10 and has an HO-2 policy for the new house.

Martha Ritchey

Gary's Aunt Martha is 64 years old. Twelve years ago, Martha won the lottery and collected a lump-sum payment of $800,000. Martha was wise with her investing and is now worth nearly $2,500,000. After winning the lottery, Martha moved to the Caribbean because too many people were asking her for money. Martha has recently moved back to the U.S. and reunited with her remaining family. She purchased a

beachfront house in Florida for $800,000 and a $50,000 convertible. Martha also owns a small yacht that she purchased while in the Caribbean. Martha's father, Robert Ritchey, is 85 years old and in declining health. Martha is the sole source of support for her father. Robert applied for long-term care insurance two years ago, but he was unable to qualify for coverage.

John and Julie Parker

The Parkers estimate that the cost of educating John and Julie at the state university will be approximately $45,000 and $55,000, respectively, for the four years.

Parker Risk Management (PRM)

Parker Risk Management provides property, casualty, life and health insurance for its clients. Gary also holds a Series 6 license for variable product sales and is considering the Series 7 licensing. PRM's life insurance needs analysis guideline is to use the human life value approach. ABC Insurance Company asked Gary to offer its life insurance products. Gary is interested in researching ABC's financial strength.

Gary and a colleague, Rick Moore, are presently in discussions about some business continuation planning for PR. Gary would like Rick to buy PRM when Gary dies because Judy has no interest in running the business. Rick is willing to buy PRM, but he does not currently have the cash available to purchase PRM if something happened to Gary.

Gary was recently notified that Northern Life Insurance Company, one of the companies where Gary places life insurance policies, has become insolvent.

PROPERTY AND CASUALTY INSURANCE POLICY INFORMATION (PARKERS)

Car

100/300/50 Liability limits

$10,000 Medical payments

$250 Comprehensive deductible

$500 Collision deductible

100/300 Uninsured motorists

100/300 Underinsured motorists Gary is the principal driver

Truck

50/100/50 Liability limits

$10,000 Medical payments

50/100 Uninsured motorists

50/100 Underinsured motorists Judy is the principal driver

Boat

Boat Owner's Package

$2,000 franchise deductible for losses up to $10,000

Gary and Judy are also in the process of purchasing a 12-year-old car for their son, John, to drive as his primary vehicle. Gary and John have applied and paid for insurance and the coverage has been bound.

1425 Clayton Road'1

HO-3 Policy Form $1,000 Deductible

$256,000 Dwelling

$25,600 Other structures

$100,000 Liability

$1,000 Medical payments

$2,000 Personal computer coverage on a valued basis'2Earthquake endorsement

'1The replacement cost is $370,000.

'2Depreciation on the computer equals $1,000.

LIFE INSURANCE POLICY INFORMATION

Gary Parker

Gary owns a universal life policy that he bought twelve years ago when he started Parker Risk Management. The face value of his policy is $500,000. The policy currently has $61,000 in cash value. Gary has paid $5,000 per year in annual premiums since the policy's inception. Judy is the primary irrevocable beneficiary with John and Julie as the contingent beneficiaries. Gary also owns a deferred annuity that will make payments for 10 years. Gary purchased this deferred annuity several years ago with a $35,000 lump- sum payment. The annuity is currently worth $50,000. Annual benefit payments are expected to be $6,000 per year starting on Gary's 62ndbirthday. Gary is also shopping for some additional life insurance so that money would be available to fund college educations for John and Julie if something were to happen to Gary.

Judy Parker

Judy owns a whole life policy that she bought eight years ago. The face value of her policy is $250,000. The policy currently has $1,200 in dividends and $5,500 in cash value. Judy has paid $1,000 per year in premiums since the policy's inception. Gary is the primary beneficiary of the policy. Judy also participates in a split-dollar insurance plan for executives at Computer Solutions. The plan was set up five years ago when Judy joined the company. Judy owns the policy and Gary is the beneficiary.

Sandy Thompson

Sandy owns a whole life policy that she purchased 32 years ago. The face value of her policy is $600,000. The policy has a waiver-of-premium rider before age 70. The policy currently has $525,000 in cash value. Sandy has paid $9,000 in annual premiums since the policy's inception. Judy is the primary beneficiary of the policy. Because Sandy is concerned about having enough money to pay her increasing medical bills, she is considering a viatical settlement. Greentree Investors has offered Sandy a viatical settlement payment of $540,000. In addition to pursuing the viatical settlement, Sandy also considered the accelerated benefits offered by her insurance company, but she was recently informed that she is ineligible for accelerated benefits. Three months ago, Sandy applied for additional life insurance and was denied coverage.

Martha Ritchey

Martha has recently considered purchasing life insurance. The factors most important to Martha are only paying premiums for the next ten years and using her dividends to purchase additional life insurance.

Robert Ritchey

Martha's father, Robert, owns a whole life policy with a face value of $200,000. Robert has paid $4,000 in annual premiums since the policy's inception ten years ago. The cash value in the policy is currently $30,000. Robert has recently been diagnosed with Parkinson's disease and is expected to live three more

years. Robert has contacted a viatical settlement company about selling his life insurance policy for $140,000.

HEALTH INSURANCE POLICY INFORMATION

Gary Parker

Gary recently purchased an individual disability income policy that uses a split/hybrid definition of disability. The policy has a 60-day elimination period and a benefit period of five years. Gary is also interested in purchasing long-term care insurance and has recently priced some policies. He is most interested in purchasing a long-term care policy with the lowest possible premiums and a short waiting period.

Judy Parker

Judy carries major medical coverage for the entire family through Computer Solutions. The family calendar-year deductible is $500 with an 80% coinsurance provision. The coinsurance stop-loss provision limits the Parker's total out-of-pocket cost per calendar year to $5,000 plus any deductibles. Judy has recently considered purchasing a disability income policy. Her primary concern is a reduction in her income due to total disability or a less-than-total disability and decreased work capacity. Her goal is to keep premiums relatively low.

Sandy Thompson

Sandy is currently receiving Medicare benefits. She also has a Medicare supplement plan in place. Sandy has owned a disability policy for twenty years that has an own occupation definition of disability. Her policy provides a base benefit of $1,500 per month and a Social Security rider that will provide replacement of her projected $1,000 Social Security disability benefit for life. Ten years ago, Sandy lost the use of her right hand because it was shut in a car door. She was unable to resume her stenographer duties, so she retired from her position and filed for disability.

Four years ago, Sandy purchased a tax-qualified, guaranteed-renewable long-term care policy. Her policy provides a daily benefit amount of $100 and has a three-year benefit period, an elimination period of 60 days, and an annual inflation protection endorsement of 5%, compounded annually.

Martha Ritchey

Martha currently carries a high-deductible health insurance plan and participates in a Health Savings Account. Martha's deductible and annual expenses equal $2,900. She contributes $200 per month to her HSA. In the current year, she received distributions of $2,200 from her HSA for qualified medical expenses. $2,000 of the distribution was the return of Martha's contributions; $200 of the distribution was earnings from her contributions.

Tim Wilson

Tim is currently shopping for a disability income insurance policy. Tim's main concerns are keeping his premiums low and level and having a policy that cannot be cancelled by the insurance company. Tim is also shopping for health insurance coverage because his employer does not provide this coverage. He would like broad health insurance coverage with low deductibles and co-pays. He is willing to give up physician choice flexibility.

PERSONAL INSURANCE: LOSS HISTORY

September 2018 - John was driving the truck when he pulled into an intersection and hit another car. Two teenage girls were in the other car. One girl sustained injuries totaling $65,000 and the other girl sustained injuries totaling $23,000. The girls were driving in a car that also sustained $12,000 in damage. John sustained injuries totaling $4,000 and damages to the truck totaled $3,000.

March 2018 - Judy's friend Elaine was visiting their home. As Elaine was walking down the front steps to leave, she tripped, fell down the stairs, and broke her ankle. Elaine's medical bills totaled $15,000.

January 2018 - Gary was driving the car when a deer jumped in front of it. Gary hit the deer, lost control of the car, and ran into a fence in a neighbor's yard. Damage to Gary's car from hitting the deer totaled $4,000. Damage to the fence totaled $2,500.

November 2017 - Judy caught pneumonia and was hospitalized for 3 weeks. Judy's hospital bill totaled $22,000.

June 2017 - Gary and Judy were hosting a barbeque in their backyard, when the fire in the barbeque pit escalated out of control and caused $64,000 of fire damage to their house. The neighbor's house also suffered damages of $10,000. The neighbor collected from his own homeowner's insurance policy for damages to his house. His insurer then brought action against Gary and Judy for repayment.

February 2017 - Julie was feeling ill and was admitted to the hospital. It was determined that she had appendicitis, and an appendectomy was performed. Julie's hospital bill totaled $7,000, including $100 for books that Julie bought from the hospital gift shop.

December 2016 - An earthquake erupted in Missouri; the Parker house was totally destroyed. Most of the Parkers' personal property was destroyed, including their personal computer. The reconstruction took eight months. Temporary housing was found until all repairs were made. Temporary housing cost $2,000 per month. Damages totaled $230,000.

May 2016 - Julie was in the Parkers' detached garage, starting the lawn mower, when the lawn mower caught fire and burned the garage. Damages to the garage totaled $10,000.

April 2015 - Gary was boating at a nearby lake when he lost control of his boat and crashed the boat into a rock. Damages totaled $7,500.

COMMERCIAL INSURANCE POLICY INFORMATION

Parker Risk Management currently carries commercial property insurance coverage for $300,000 on the business building. The replacement cost for the building was determined to be $500,000. The policy is written on a replacement cost basis with an 80% coinsurance requirement and a $2,000 deductible. Gary also carries business income coverage for PRM. PRM's average gross income per day is $1,000; the average net income per day is $600.

Parker Risk Management had carried an occurrence-based general liability policy since the company's inception but switched to a claims-made based policy in January 2018.

COMMERCIAL INSURANCE LOSS HISTORY AND INFORMATION

February 2018 - A former client at PRM, Millie Davis, filed a lawsuit against the company for a fall she sustained two years ago while walking out of the office. Millie sued to recover medical expenses recently incurred to get a hip replacement. Damages totaled $43,000.

January 2018 - Victor Kent, a client at PRM, applied for variable life insurance through PRM. Gary neglected to give Victor a prospectus as part of the sale.

January 2018 - Tony, an employee at PRM, was caught stealing insurance premiums from PRM. Damages totaled $3,000.

December 2017 - Tonya Watkins, a client of PRM, came into the office to apply for a $100,000 life insurance policy. Tonya's husband was named as the beneficiary. Gary was unsure whether Tonya would meet underwriting requirements, so the policy was submitted without any premium. As Tonya was leaving PRM, she had a heart attack and died instantly.

September 2017 - Heather Roberts, a client of PRM, filed a $3,000 claim on a car she still had insured but had just sold to her neighbor. The insurance company denied the claim.

Mach 2017 - A candle was accidentally left burning at the office overnight. One section of the office was destroyed by fire. PRM was unable to resume business operations for six business days. Damages to the building totaled $70,000. Gary also incurred expenses totaling $1,000 to minimize the shutdown period.

November 2016 - Doug Tillman, a client of PRM, was in the office paying his insurance premiums, when a ceiling tile fell and hit him on the head. He suffered a concussion; damages totaled $6,000.

April 2016 - Kim Wilson, a 16-year-old student, purchased a life insurance policy on herself. Gary submitted the application and premium to the life insurance company. The policy was issued.

Question 1(1 point)

Following the June 2017 homeowner's loss, the neighbor's insurance company demonstrated what principle?

Question 1 options:

a)

Indemnity

b)

Insurable interest

c)

Adverse selection

d)

Subrogation

Question 2(1 point)

Which of the following is arisk reductiontechnique that Gary could use to help lower his insurance premiums?

Question 2 options:

a)

Increase the deductible on his auto insurance policy

b)

Use hold-harmless agreements in leases

c)

Install a security system in his home

d)

Cover employee theft losses out of business income

Question 3(1 point)

Which of the following is the best risk management technique for Tim's recent car purchase?

Question 3 options:

a)

Insurance for the property and liability loss exposures

b)

Avoidance for the property loss exposure and retention for the liability loss exposure

c)

Retention for the property loss exposure and transfer for the liability loss exposure

d)

Retention for the property loss exposure and reduction for the liability loss exposure

Question 4(1 point)

Which of the following is the best risk management technique for Martha's recent home purchase?

Question 4 options:

a)

Reduction for the property loss exposure and insurance for the liability loss exposure

b)

Retention for the property loss exposure and transfer for the liability loss exposure

c)

Transfer for the property and liability loss exposures

d)

Reduction for the property and liability loss exposures

Question 5(1 point)

Which of the following correctly describes the policy PRM wrote on Kim in April 2016?

Question 5 options:

a)

The policy never existed at all

b)

The policy can be cancelled by either Kim or PRM

c)

The policy is not enforceable because Kim is a minor

d)

The policy is valid if both parties fulfill the policy requirements

Question 6(1 point)

Which of the following risk exposures should Tim Wilson treat as a priority for insuring?

Question 6 options:

a)

Poor health

b)

Liability losses

c)

Unemployment

d)

Death

Question 7(1 point)

Which of the following is Gary Parker's biggest area of risk exposure?

Question 7 options:

a)

Death

b)

Disability

c)

Retirement

d)

Poor health

Question 8(1 point)

Which of the following loss exposures should most concern Martha?

Question 8 options:

a)

Property losses to her home

b)

Life insurance

c)

Long-term care costs for her father

d)

Liability losses from her car, home and boat

Question 9(1 point)

For which coverage is Tim Wilson most likely to buy an amount of insurance based on the maximum possible loss from the risk exposure?

Question 9 options:

a)

Life insurance

b)

HO-2 property insurance

c)

PAP coverage

d)

Disability income insurance

Question 10(1 point)

If Gary wants to add a $1 million umbrella policy, where would he look in the policies providing the primary coverage to make sure there is no coverage gap?

Question 10 options:

a)

Declarations

b)

Insuring agreement

c)

Exclusions

d)

Conditions

What was the insurance company's payout for Julie's hospital stay in February 2017?

Question 11 options:

a)

$7,000

b)

$5,600

c)

$5,200

d)

$5,120

Question 12(1 point)

During Judy's November 2017 hospital stay, how much out-of-pocket expenses were incurred for that claim?

Question 12 options:

a)

$17,200

b)

$4,800

c)

$4,400

d)

$3,720

Question 13(1 point)

Which of the following claims would NOT be excluded under the Parkers' current medical insurance coverage?

Question 13 options:

a)

Eyeglasses for Julie

b)

Injuries Gary sustains during a trip to Italy

c)

John's cosmetic surgery after his auto accident

d)

Injuries related to a fall Judy has at work

Question 14(1 point)

What is the tax result of Martha's contributions to her Health Savings Account in the current year?

Question 14 options:

a)

$2,400 itemized deduction

b)

$2,400 above-the-line deduction

c)

$2,900 itemized deduction

d)

$2,900 above-the-line deduction

Question 15(1 point)

What is the tax result of Martha's distributions from her Health Savings Account in the current year?

Question 15 options:

a)

$0

b)

$200 ordinary income

c)

$200 capital gain

d)

$2,000 capital gain

Question 16(1 point)

Which of the following disability income policy provisions should be recommended to Judy based on her objectives?

Question 16 options:

a)

Own occupation definition of disability

b)

Partial disability benefits with no elimination period

c)

Residual disability benefits with a 90-day elimination period

d)

Any occupation definition of disability with a 1-year benefit period

Question 17(1 point)

How much disability income did Sandy receive from the insurance company when she injured her hand, assuming that she was receiving a Social Security disability benefit of $400?

Question 17 options:

a)

$0

b)

$1,500

c)

$2,100

d)

$2,500

Question 18(1 point)

Which of the following changes would help Gary lower his disability insurance premiums with the least effect on his coverage?

Question 18 options:

a)

Changing his definition of disability to an own occupation definition

b)

Changing his definition of disability to an any occupation definition

c)

Changing his benefit period to ten years

d)

Changing his elimination period to 90 days

Question 19(1 point)

Which of the following disability income policies should be recommended to Tim?

Question 19 options:

a)

Any occupation definition of disability with a guaranteed renewable provision

b)

Any occupation definition of disability with a noncancelable provision

c)

Own occupation definition of disability with a noncancelable provision

d)

Split definition of disability with a guaranteed renewable provision

Question 20(1 point)

Which of the following statements is correct concerning the tax treatment of Sandy's disability income insurance policy?

Question 20 options:

a)

The benefit is free of income taxation

b)

A portion of the benefit is taxable income

c)

The total premiums paid can be deducted for income tax purposes

d)

A portion of the premiums paid can be deducted for income tax purposes

Question 21(1 point)

Which of the following long-term care policies would be most appropriate for Gary?

Question 21 options:

a)

$100 daily benefit with a two-year benefit period and a 90-day elimination period

b)

$250 daily benefit with a two-year benefit period and a 30-day elimination period

c)

$100 daily benefit with a two-year benefit period and a 30-day elimination period

d)

$150 daily benefit with a two-year benefit period and no elimination period

Question 22(1 point)

If Sandy is admitted for 180 days to a long-term care facility that charges $130 per day, how much will Sandy's policy pay?

Question 22 options:

a)

$8,814

b)

$12,000

c)

$14,586

d)

$15,600

Question 23(1 point)

Sandy is concerned with reducing her long-term care policy premiums. Which of the following would help Sandy reduce her premiums?

Question 23 options:

a)

Changing her elimination period to 30 days

b)

Changing her benefit period to 4 years

c)

Changing her inflation protection to 4%

d)

Changing her daily benefit to $125

Question 24(1 point)

Which of the following statements is correct regarding Sandy's long-term care policy?

Question 24 options:

a)

Upon admission to a long-term care facility, Sandy is immediately released from paying any further premiums

b)

Sandy must wait 60 days from the date the policy was written for her policy to be issued

c)

Sandy must be unable to perform two activities of daily living (ADL) for her coverage to begin

d)

Sandy's current daily benefit is $105

Question 25(1 point)

Which of the following is the least suitable financing option Martha can use for Robert's long-term care expenses?

Question 25 options:

a)

Taking an accelerated death benefit from his life insurance policy

b)

Entering the viatical settlement agreement

c)

Taking a life insurance policy loan against the cash value in his life insurance policy

d)

Giving away his assets to qualify for Medicaid

Question 26(1 point)

Which of the following statements concerning the payout from Gary's annuity is correct?

Question 26 options:

a)

Gary assumes the risk that the payout will not increase as expected

b)

Gary can be certain that the payout from the annuity will exceed the amount he invested in it

c)

If Gary lives past age 70, the payout from the annuity will end

d)

The annual payout would have been larger from a joint life annuity with Judy

Question 27(1 point)

If Gary were to take a $25,000 withdrawal from his annuity this year, what would be his income tax consequences?

Question 27 options:

a)

$16,500 ordinary income

b)

$15,000 capital gain and $2,500 penalty

c)

$15,000 ordinary income and $2,500 penalty

d)

$15,000 ordinary income and $1,500 penalty

Question 28(1 point)

When Gary takes payments from his annuity, how much of his annual payment is includible in gross income?

Question 28 options:

a)

$1,000

b)

$2,500

c)

$3,500

d)

$5,000

Question 29(1 point)

When Gary reaches age 69, which of the following statements concerning the annuity payments will be correct?

Question 29 options:

a)

Gary will receive the same amount of taxable income annually as at age 62

b)

The return of capital portion of the annuity payments will be discontinued

c)

The annuity payments will consist entirely of taxable ordinary income

d)

No more payments will be made from the annuity

Question 30(1 point)

If Gary dies the day after his 65^thbirthday, which of the following statements concerning the annuity will be correct?

Question 30 options:

a)

Payments to a beneficiary will be tax-free if Judy is the beneficiary

b)

Payments to a non-spousal beneficiary will consist entirely of ordinary income

c)

Payments to a beneficiary will continue as during Gary's life and must continue for six years

d)

Payments to a beneficiary will continue from the date of death for 10 years

Which of the following is correct concerning Gary's current beneficiary designation on his life insurance policy?

Question 31 options:

a)

If Judy and the children are still living when Gary dies, the life insurance death benefit will be split evenly among them all

b)

If Judy predeceases Gary, the children will receive the life insurance proceeds after Gary dies and must pay estate taxes on the proceeds

c)

Gary has the right to assign his policy to whomever he wishes without the consent of any of his beneficiaries

d)

If John predeceases Gary, Judy will receive the life insurance proceeds when Gary dies

Question 32(1 point)

Which of the following life insurance policies should be recommended to Martha given her objectives?

Question 32 options:

a)

10-year term

b)

10-year limited payment whole life policy with dividends purchasing paid-up additions

c)

10-year limited payment whole life policy with dividends accumulating at interest

d)

Single-premium whole life policy with dividends accumulating at interest

Question 33(1 point)

Which settlement option should Sandy select for the life insurance proceeds from her husband Robert's life insurance policy?

Question 33 options:

a)

Lump-sum payment

b)

Straight life annuity

c)

Life annuity with refund feature

d)

Life annuity with period certain

Question 34(1 point)

When Sandy became disabled ten years ago, which of the following happened with her life insurance policy?

Question 34 options:

a)

The insurance company paid the death benefit to Sandy

b)

The insurance company began making the premium payments

c)

The insurance company surrendered the policy and paid Sandy her cash value

d)

The insurance company cancelled the policy

Question 35(1 point)

Gary has recently talked to Tim about purchasing life insurance.One policy Gary plans to propose is a universal life policy.Which of the following riders would be most appropriate for the universal life proposal Gary is preparing for Tim?

Question 35 options:

a)

Waiver-of-premium rider

b)

Long-term care rider

c)

Guaranteed insurability

d)

Accelerated death benefits

Question 36(1 point)

If Gary surrenders his life insurance policy for its cash value, what would he report on his income tax return?

Question 36 options:

a)

$1,000 ordinary income

b)

$1,000 capital gain

c)

$3,500 ordinary income

d)

$3,500 capital gain

Question 37(1 point)

If Judy takes the dividends from her life insurance policy, what would she report on her income tax return?

Question 37 options:

a)

$0

b)

$1,000 ordinary income

c)

$1,200 capital gain

d)

$1,200 ordinary income

Question 38(1 point)

What taxable gain must Robert Ritchey report if he sells his life insurance policy to the viatical settlement?

Question 38 options:

a)

$0

b)

$60,000

c)

$100,000

d)

$110,000

Question 39(1 point)

If Sandy elects to accept the viatical settlement offered by Greentree, what amount must Greentree report for tax purposes in the year of Sandy's death, ignoring future premiums paid by Greentree?

Question 39 options:

a)

$15,000 ordinary income

b)

$15,000 capital gain

c)

$60,000 ordinary income

d)

$60,000 capital gain

Question 40(1 point)

If Sandy accepts the viatical settlement and lives past her life expectancy, what portion of the viatical settlement payment is taxable to Sandy?

Question 40 options:

a)

The difference between the cash value in her policy and the payment from Greentree

b)

The entire payment Sandy receives from Greentree

c)

The cash value in her original policy

d)

None of it

Question 41(1 point)

If Judy Parker dies next year, which of the following statements is correct?

Question 41 options:

a)

The key person policy on her life is payable to Gary income tax free

b)

Gary can buy the key person policy at Judy's death for its cash value

c)

Network Consultants can deduct the premiums on the key person policy up to the first $50,000 of coverage

d)

Network Consultants will receive the proceeds of the key person policy income tax free but possibly subject to the corporate alternative minimum tax

Question 42(1 point)

If, at retirement, Judy buys the key person life insurance policy owned by Network Consultants, which of the following statements is correct?

Question 42 options:

a)

The policy will be transformed into a split-dollar arrangement

b)

The purchase will constitute a transfer for value with adverse income tax consequences

c)

Network Consultants must pay ordinary income tax on any gain from the sale

d)

The death benefit will lose its income tax free character after the transfer, due to a lack of insurance interest

Question 43(1 point)

Which of the following statements concerning the split-dollar arrangement that Computer Solutions offered to its executives is correct?

Question 43 options:

a)

The employer owns the cash value, but the death benefit minus the cash value is paid directly to the executive's beneficiary

b)

All premiums are paid by the employer, and the cash value accrues to the employer, with the death benefit minus the cash value paid to the executive's beneficiary

c)

The employer owns the cash value up to the amount of the premiums paid; the executive owns the cash value amounts over the cost of the premiums paid and is taxed on the cash value

d)

The executive owns the balance of the cash value over the premiums paid by the employer, and the employers receives from the death proceeds its premiums paid.The executive will have to include the deemed interest payments in taxable income each year

Question 44(1 point)

Which of the following persons has a need for business overhead expense disability income insurance?

Question 44 options:

a)

Gary Parker

b)

Judy Parker

c)

Tim Wilson

d)

Robert Ritchey

Question 45(1 point)

If Gary uses cross-purchase buy-sell agreements with Frank Thomas and Rick Moore for business continuation planning, which of the following statements is correct?

Question 45 options:

a)

The buy-sell agreement between Rick Moore and Gary is likely to be inequitable due to the different ages and interests of the parties

b)

When Frank retires, Rick will likely have to buy substantial additional life insurance coverage on Gary

c)

The agreement will require a large number of life insurance policies that will make it administratively burdensome

d)

An entity agreement would be preferable to a cross-purchase agreement in the event a merger occurs.

Question 46(1 point)

What is Gary NOT taking into consideration when he completes an insurance needs analysis with clients?

Question 46 options:

a)

Determining expected income taxes for the client

b)

Determining a reasonable discount rate

c)

Determining personal family expenditure needs

d)

Determining expected Social Security benefits

Question 47(1 point)

What would NOT be a benefit of Gary's using the capital retention approach to insurance needs analysis versus the current approach he uses?

Question 47 options:

a)

Consideration of the capital needed to provide income

b)

Consideration of other income sources available

c)

Consideration of the dividends available in the policy

d)

Consideration of when income would be needed by the beneficiaries

Question 48(1 point)

What could make Gary's life insurance needs analysis more comprehensive?

Question 48 options:

a)

Considering capital retention, if appropriate

b)

Considering the value of future earnings

c)

Considering tax expenditures

d)

Considering inflation and a reasonable discount rate

Question 49(1 point)

What business continuation strategy should be recommended to Gary and Rick for PRM?

Question 49 options:

a)

Gary and Rick should enter into a buy-sell agreement for PRM

b)

Judy and Rick should enter into a buy-sell agreement for PRM

c)

Judy should purchase life insurance on Rick and enter into a one-way buy-sell agreement

d)

Rick should purchase life insurance on Gary and enter into a one-way buy-sell agreement

Question 50(1 point)

What would NOT be a benefit of Gary's using the financial needs approach to life insurance needs analysis versus the current approach?

Question 50 options:

a)

Consideration of current personal wealth

b)

Consideration of other life insurance resources

c)

Consideration of total cash needs

d)

Consideration of the cash value generated by the policy

Gary is considering a purchase of a life insurance product for John and Julie.Which of the following would be most appropriate?

Question 51 options:

a)

10-year term

b)

30-year term

c)

Whole life

d)

Deferred annuity

Question 52(1 point)

Which of the following policies should Gary purchase to fulfill his additional life insurance needs?

Question 52 options:

a)

$100,000, 5-year term

b)

$100,000, 10-year term

c)

$150,000, universal term

d)

$200,000, yearly-renewable term

Question 53(1 point)

What policy would be the most appropriate vehicle for a buy-sell agreement between Gary and Frank?

Question 53 options:

a)

Variable universal life

b)

10-year level term

c)

Universal life

d)

Yearly-renewable term

Question 54(1 point)

Tim has asked Gary for advice on what life insurance policy would be most appropriate, given Tim's financial situation.What policy is most suitable?

Question 54 options:

a)

Convertible term

b)

Variable life

c)

Universal life

d)

Whole life

Question 55(1 point)

Which of the following health insurance products should be recommended to Tim?

Question 55 options:

a)

Hospital-Surgical-Medical policy

b)

Major Medical Expense policy

c)

Preferred Provider Organization (PPO) policy

d)

Health Maintenance Organization (HMO) policy

Question 56(1 point)

What was the insurance company's payout to the Parkers for the May 2016 loss to the garage?

Question 56 options:

a)

$9,000 under Coverage A

b)

$9,000 under Coverage B

c)

$7,649 under Coverage A

d)

$7,649 under Coverage B

Question 57(1 point)

For the February 2018 liability claim filed against PRM, which commercial general liability policy will cover the claim?

Question 57 options:

a)

Claims-made policy

b)

Occurrence-based policy

c)

Both claims-made and occurrence-based policies

d)

Neither claims-made nor occurrence-based policies

Question 58(1 point)

Regarding the September 2018 truck accident in which John sustained injuries totaling $4,000, what is the amount of the Parkers' out-of-pocket cost for John's medical bills?

Question 58 options:

a)

$0

b)

$500

c)

$700

d)

$1,200

Question 59(1 point)

Gary and Judy are considering the purchase of a personal umbrella liability policy.Which of the following underlying policies' liability coverage must be matched to the requirements stated in the umbrella policy in order to ensure there is no coverage gap?

1. HO-3 policy
2. PAP
3. Boat owner's policy
4. Property insurance on the Parker Risk Management building

Question 59 options:

a)

(1) and (2) only

b)

(2) and (3) only

c)

(1) and (4) only

d)

(1), (2) and (3) only

Question 60(1 point)

Which of the following perils is not covered under the Parker's homeowner policy?

1. Flood
2. Earthquake
3. Mold

Question 60 options:

a)

(1) only

b)

(3) only

c)

(1) and (3) only

d)

(1), (2) and (3)