Chapter 3 Review Questions

Which of the following is/are key differences between viatical and senior settlements?

a.  factors motivating the sale of the policy
b.  the precision of the estimated life expectancy
c.  tax implications from the sale
*d.  all of the above

Regarding viatical settlements today, a majority of viatical settlements involve insured diagnosed with:

*b.  illnesses other than AIDS
c.  non-life threatening diseases
d.  none of the above are true

Viatical Settlement providers will consider purchasing any of the following EXCEPT:

a.  universal life policies
*b.  non-convertible term life policies
c.  group life certificates
d.  modified whole life policies

Who may viaticate a life insurance policy?

*a.  the policyholder
b.  the insured
c.  the beneficiary
d.  any of the above

Which types of policyholders are permitted to viaticate a policy?

a.  fiduciaries
b.  corporations
c.  tax-exempt charitable organizations
*d.  any of the above

Which of the following is a factor is determining whether a viatical settlement can occur?

a.  age of the insured
*b.  life expectancy of the insured
c.  policyholder's need for funds
d.  all of the above

Under the NAIC's guidelines, an insured having a life expectancy of 6 months to one year can expect viatical settlement proceeds of at least:

a.  50% of the net death benefits
b.  60% of the net death benefits
c.  70% of the net death benefits
d.  80% of the net death benefits

What factors will affect the size of a viatical settlement under the NAIC's Model Law?

a.  age of the insured
*b.  quality of the insurance carrier
c.  willingness of the buyers and sellers to engage in the transaction
d.  all of the above

What is/are the minimum requirement(s) for a senior settlement?

a.  the policyholder must be at least 65 years old
b.  the insured must be diagnosed as "chronically ill"
c.  both a and b
*d.  neither a nor b   

Most viatical settlement providers will consider a senior settlement for policies:

a.  $100,000 or more
*b.  $250,000 or more
c.  $500,000 or more
d.  $1 million or more

Which of the following is seen as an impediment to the development of the market for senior settlements?

*a.  the fragmented nature of the market
b.  the number of potential sellers
c.  anticipated growth of the market
d.  all of the above

Which of the following affect the proceeds of a senior settlement?

a.  future premiums due on the policy
b.  face value of the policy
c.  rating of the insurance carrier
*d.  all of the above

What is the primary factor in pricing a lifetime settlement?

a.  rate of return desired by the purchaser
*b.  life expectancy of the insured
c.  quality of the insurance carrier
d.  none of the above

Prospects for senior settlements should consider which of the following when deciding whether to sell their policy?

a.  the suitability of the coverage
b.  the affordability of the coverage
c.  the investment performance of the policy
*d.  all of the above

Which of the following represents the most promising prospect for a senior settlement?

a.  Mr. Green, a widower, age 66 owns a $1.5 million universal life policy.  He has just undergone heart bypass surgery.  He has a quadriplegic 25-year old son in need of custodial care.   
b.  Mrs. Peacock, age 76, owns a $1 million convertible term policy issued by a top-rated carrier.  She has no dependents and has named the American Cancer Society as beneficiary. She has been diagnosed with inoperable brain cancer and needs funds to pay for experimental medical treatment.
* c.  Colonel Mustard, recently retired from the military at age 70.  He owns a $500,000 whole life policy with a mid-rated carrier. He was recently diagnosed with adult-onset diabetes and seeks to supplement his military pension.  
d.  Ms. Scarlet, age 75 in excellent health, owns a $500,000 million policy issued by a top-rated carrier. Her daughters are named as beneficiaries.  Her sizable estate will provide adequately for her heirs and she wishes to spend more time traveling around the world.

Tom, Dick and Harry are partners in an accounting firm.  They are all in their mid-fifties and have drafted a cross-purchase buy-sell agreement with each partner holding policies on the other two partners' lives.  They decide to make their 30-year old office manager, Zack, a partner.  In reviewing their buy-sell agreement Zach is concerned that he will have to pay premiums on three expensive policies insuring the older partners, and they will pay less to insure his life.  He proposes the firm adopt an entity plan, in which the partnership holds a single policy on each partner's life.  The partners agree to this change.  Which would be the best course of action?

a.  have the three older partners sell the existing policies in a lifetime settlement and have the partnership purchase new policies on the four partners' lives
b.  have the three older partners assign their existing policies to the partnership and have the partnership purchase coverage on Zack's life
c.  use a Section 1035 exchange to consolidate the coverage on each of the older partner's lives and obtain new coverage for Zack
*d.  all of the above might be appropriate and the partners should explore the differences in premiums and policy coverage available under each of these alternatives

Businesses may use lifetime settlements to:

a.  obtain more suitable coverage
b.  repay debts or reorganize under bankruptcy
c.  eliminate unneeded coverage and premium payments
*d.  all of the above