Understanding Viatical Settlements FINAL EXAM (IL 6000112007) (2023)

Ellen cannot perform two of the activities of daily living without substantial assistance. Under HIPAA, she is considered

Which one of the following is NOT considered an activity of daily living (ADL) under HIPAA?

What would be the approximate reserve under a whole life insurance policy if the present value of future premiums were $100,000 and the present value of benefits promised under the policy were $150,000?

What is the term used in connection with life and viatical settlements to denote the difference between a life insurance policy’s death benefit and the outstanding loans secured by it?

Helen purchased her life insurance policy last year. She just applied for a life settlement and has been advised that her life insurance policy is a non-conforming policy. What has she been told?

What does the process for the settlement of a life insurance policy generally begin with?

Which of the following is responsible for payment of life insurance policy premiums following a policyowner’s sale of the policy in a life settlement?

Ellen has been diagnosed with a terminal illness and has decided to try to sell her life insurance policy in a viatical settlement. Ellen’s life expectancy is only 18 months. Her policy’s death benefit is $100,000, and there is an outstanding policy loan of $20,000. Which of the following settlement amounts is likely to be appropriate?

How many life settlement offers should a policyowner generally seek?

Bill received a life settlement check on June 1 but has decided he made a bad decision. Under the NAIC Viatical Settlements Model Act, what is the last day that he can rescind the sale?

Under the NAIC Viatical Settlements Model Act, how long after signing a viatical settlement contract does a viator have to rescind the contract?

Which of the following correctly defines the viator in a viatical settlement arrangement?

Large Settlements Inc., a major life settlement broker, knew that a prospective viator had purchased a life insurance policy through clean sheeting. In order to be able to sell the policy in the secondary market without risking rescission, it has chosen to wait until the contestable period expires. What viatical settlement fraud is Large Settlements Inc. committing?

Al purchased a life insurance policy and indicated it was purchased to meet estate planning needs. In fact, he intended to sell the policy in the secondary market immediately. What viatical settlement fraud, if any, has Al committed?

Phil’s life insurance policy, under which he was the insured policyowner, was the subject of a life settlement. If the policy’s annual premium is $10,000, how much of the premium is he still responsible for paying after the settlement occurs?

Who is the intended victim in a dirty sheeting viatical fraud scheme?

Arthur owns a company in the viatical settlement business. In order to obtain money from investors, he has used investments made by later investors to pay inflated returns to earlier investors. What viatical settlement fraud is he committing?

Helen wants to exchange her life insurance policy for a long-term care policy under IRC §1035. When did/will such a tax-free exchange first become available under the Internal Revenue Code?

Paula believes her life insurance policy is inappropriate for her objectives. Under IRC §1035, which of the following can she NOT exchange her policy for?

Ellen has exchanged her existing life insurance policy for a new life insurance policy under IRC §1035. The contestable period under the replaced policy had expired. Which of the following statements is correct concerning the contestable period under her new coverage?

John received $150,000 in proceeds under a life settlement. Which of the following statements concerning the settlement’s protection from creditors is correct?

Peter paid total premiums of $15,000 for his life insurance policy, which has a cash value of $17,500. The policy is not a modified endowment contract. If he borrowed $3,000 from the policy, how much of the loan will he be required to recognize as income?

Audrey paid a total of $50,000 in premiums for her life insurance policy and has received a total of $49,800 in dividends over the life of the policy. If she receives a policy dividend check for $500 this year, how much, if any, of the dividend must she include in her income?

Harley’s life insurance policy is not a modified endowment contract. How much, if any, of the $5,000 withdrawal he took from it must he include in his income if his total paid premiums were $12,000 and his cash surrender value was $15,000 at the time of the withdrawal?

Lindsey’s life insurance policy is not a modified endowment contract. How much, if any, of the $13,000 withdrawal she took from it must she include in her income if her total paid premiums were $12,000 and her cash surrender value was $15,000 at the time of the withdrawal?

Sheila’s life insurance policy is a modified endowment contract and, as such, is subject to unfavorable LIFO tax treatment. Its cash value is $15,000 and her cost basis in the policy is $12,000. How much, if any, of a $13,000 withdrawal she took from the policy must she include in her income?

Ellen’s life insurance policy is a modified endowment contract subject to LIFO tax treatment of distributions. She paid $20,000 in total premiums for the policy which has a current cash value of $24,000. If she borrows $5,000 under the policy, how much, if any, of the loan will she be required to include in her income?

Bill’s life insurance policy is a modified endowment contract for which he paid aggregate premiums of $25,000. At the time that $750 in dividends was applied to his policy to purchase paid-up additions, his cash surrender value was $27,000. How much, if any, of the dividends is Bill required to include in his income?

Cynthia, age 45, owns a life insurance policy that is a modified endowment contract. She paid $20,000 in total premiums for the policy, which now has a $23,000 cash surrender value. If she took a $7,000 withdrawal from the policy and she is in a 22 percent income tax bracket, what would her income tax liability be—INCLUDING ANY TAX PENALTY—as a result of the withdrawal?

What is the process under which a terminally ill insured’s life insurance policy is purchased in the secondary market?

Under the NAIC Viatical Settlements Model Act, life settlement providers and life settlement brokers must be licensed

MegaSettlements, Inc., a life settlement provider, has elected a new president at its most recent board meeting. Under the NAIC Viatical Settlements Model Act, how soon after the change in officers must it notify the insurance commissioner in its state of domicile?

Under the NAIC Viatical Settlements Model Act, how soon following the date a viator executes documents changing the ownership of a life insurance policy to a life settlement provider must the provider notify the insurer of the transaction?

Which of the following led to the requirement for insurable interest in the approval for issue of a life insurance policy?

Which of the following is the method set forth in the NAIC Viatical Settlements Model Act to help eradicate stranger-originated life insurance (STOLI)?

Monolithic Enterprise, Inc., has sent flyers to all the local senior centers in the state offering seniors a way to make money. In exchange for $5,000 in cash, the senior will apply for a $350,000 life insurance policy on his or her life, with the premiums to be financed. After two years, the policy is sold to investors who will collect the death proceeds at the senior’s death. What is this arrangement?

A STOLI arrangement violates which of the following principles of insurance contract law?

Which of the following is NOT a trigger for the payment of accelerated death benefits?

All of the following purchased life insurance policies within the previous five years and now want to sell their policies in the secondary market. Based on life events, who would be in violation of the NAIC Viatical Settlements Model Act by doing so?

Based on the following characteristics, which of the following is NOT a likely candidate for a STOLI arrangement?

Jean, a registered representative for a large broker-dealer, has received written approval from her broker-dealer to participate in a life settlement transaction for a customer. What is the broker-dealer’s responsibility with respect to the transaction?

Ed has a health impairment. When he applied for a life insurance policy, he chose not to disclose the condition to the insurer, so that he would own a more salable policy to sell in the secondary market. Which of the following types of fraud has he committed?

Carla has been asked to provide personal financial and medical information to a life settlement provider in connection with her application for a viatical settlement. She is concerned that such information will be disclosed to others. Which of the following is correct with respect to such disclosure under the NAIC Viatical Settlements Model Act?

Helen, a viator with a life expectancy of 22 months, is concerned about how often a life settlement provider may monitor her health status if she sells her life insurance policy in a viatical settlement. Which of the following statements correctly answers her concern, assuming the settlement is governed by the NAIC Viatical Settlements Model Act?

John has just signed and sent the life settlement closing documents, including the assignment forms to change ownership of his policy, to the life settlement provider. He has asked you how soon he can expect his settlement check. Which of the following is correct under the NAIC Viatical Settlements Model Act?

Shirley bought her brother’s $100,000 life insurance policy for $30,000 and paid additional premiums of $10,000. Since Shirley’s purchase of the policy is a transfer for value, how much of the death benefit would she receive income tax free?

When an insured meets the definition of terminally ill or chronically ill, HIPAA extends the tax-free treatment of death benefit proceeds from a life insurance policy to

Phil is neither terminally ill nor chronically ill but is considering selling his life insurance policy in a life settlement. He paid $50,000 in total premiums for the policy which has a $75,000 current cash surrender value. What income tax treatment will apply to the first $75,000 of any life settlement proceeds he receives?

Audrey is contemplating the sale of her life insurance policy under a life settlement. How will the proceeds she receives under the life settlement be taxed?

Phil has been diagnosed with a medical condition that has reduced his life expectancy to 18 months. Under HIPAA, what is he considered?