1. Life insurance death proceeds are normally includable in a deceased insured’s gross estate:
A. for federal income tax purposes only
B. if the proceeds were paid to or on behalf of the owner-insured’s estate Correct
C. if the insured’s beneficiary owns the policy
D. only if the policy had cash surrender value
Explanation
Life insurance death proceeds are includable in the deceased insured’s gross estate if they are paid to or on behalf of the owner-insured’s estate, as this indicates the insured had incidents of ownership, making the proceeds part of the taxable estate. Choice A is incorrect because life insurance proceeds are generally not subject to federal income tax. Choice C is incorrect because the beneficiary owning the policy typically removes the proceeds from the insured’s estate. Choice D is incorrect because the presence of cash surrender value alone does not determine estate tax inclusion.
2. The preventive medical care benefit sometimes provided in a Medicare supplement policy covers:
A. Home health care
B. Skilled nursing care
C. Hospitalization
D. Annual physical exams Correct
Explanation
The preventive medical care benefit in a Medicare supplement policy typically covers annual physical exams to promote early detection and prevention. Choice A is incorrect because home health care is a separate benefit under Medicare. Choice B is incorrect as skilled nursing care is covered under specific conditions, not preventive care. Choice C is incorrect because hospitalization is covered by Medicare Part A, not typically as a preventive benefit in supplement policies.
3. The designation of a beneficiary by class in a life insurance policy means that:
A. the policy must be a form of business life insurance
B. a primary beneficiary cannot be designated in the policy
C. individual beneficiaries are not specified by name Correct
D. the beneficiaries are unrelated to the insured
Explanation
A beneficiary designation by class means beneficiaries are identified by a group category, such as 'children,' rather than by individual names. Choice A is incorrect because class designations are not exclusive to business life insurance. Choice B is incorrect as a primary beneficiary can still be designated by class. Choice D is incorrect because class beneficiaries, like 'spouse' or 'children,' are typically related to the insured.
4. It is unlawful for a person to provide an advertisement that:
A. Points out coverage advantages of a policy
B. Refers to the insurer's financial rating
C. Uses a policy title to misrepresent a coverage Correct
D. Compares benefits between policies
Explanation
It is unlawful to use a policy title to misrepresent coverage, as this is deceptive and violates insurance advertising regulations. Choice A is incorrect because highlighting coverage advantages is permissible if accurate. Choice B is incorrect as referencing an insurer’s financial rating is allowed if truthful. Choice D is incorrect because comparing policy benefits is acceptable if done fairly and accurately.
5. Under the absolute assignment of a life insurance policy:
A. all incidents of ownership are transferred to the assignee Correct
B. the original policy owner may change the beneficiary designation
C. all debts owed to the insurance company are canceled
D. the original policy owner is entitled to receive the cash value of the policy
Explanation
An absolute assignment transfers all incidents of ownership, such as the right to change beneficiaries or surrender the policy, to the assignee. Choice B is incorrect because the original owner loses the right to change the beneficiary after an absolute assignment. Choice C is incorrect as debts to the insurer are not automatically canceled. Choice D is incorrect because the original owner does not automatically receive the cash value upon assignment.