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1. Under a group life insurance plan sponsored by an employer, who holds the master contract and who receives a certificate of insurance?

In group life insurance the sponsoring employer (or association) is the policyowner and holds the single master contract. Each insured employee receives only a certificate of insurance summarizing coverage, beneficiary, and conversion rights.

2. An employee with $100,000 of group term life coverage is terminated. How long does she have to convert to an individual permanent policy without proof of insurability?

California group life law requires a 31-day conversion privilege following termination of group coverage. The departing employee may convert to an individual permanent policy at her attained age with no evidence of insurability.

3. Under Internal Revenue Code Section 79, how much employer-paid group term life coverage on an employee is excluded from the employee's taxable income?

Section 79 excludes the cost of the first $50,000 of employer-paid group term life coverage from the employee's taxable income. The cost of coverage above $50,000, calculated from IRS Table I, is imputed income on the employee's W-2.

4. Which federal agency has primary responsibility for enforcing ERISA's fiduciary, disclosure, and reporting rules for employer-sponsored benefit plans?

ERISA is administered chiefly by the U.S. Department of Labor through its Employee Benefits Security Administration. The IRS handles tax qualification of pensions and the PBGC insures certain defined-benefit pensions, but front-line fiduciary and disclosure enforcement is DOL.

5. An annuity is best described as protection against which risk?

An annuity is the mirror image of life insurance. Life insurance insures against dying too soon; an annuity insures against living too long, by converting accumulated savings into a stream of income that the annuitant cannot outlive.

6. In an annuity contract, whose life is used to calculate the periodic payouts during the annuitization phase?

The annuitant is the natural person whose life is the measuring life for the payout calculation. Owner and annuitant are often the same person, but they need not be. The beneficiary receives any remaining value only if the owner dies before annuitization.

7. In a fixed annuity, who bears the investment risk on the funds the owner has paid in?

A fixed annuity credits a declared current rate that is never less than the guaranteed minimum stated in the contract. The insurer bears the investment risk and must credit at least the minimum even if its own investments perform poorly.

8. Which license, in addition to a California life-only license, must a producer hold to sell a variable annuity?

Variable annuity subaccounts are securities, so selling a variable annuity requires a FINRA securities license such as Series 6 (mutual funds and variable contracts) or Series 7, in addition to a state life insurance license.

9. An indexed annuity has a 0% floor and a 6% cap. If the linked index returns negative 12% in a contract year, what interest is credited to the owner's account that year?

The floor prevents loss in a down year. With a 0% floor, the worst that can happen is that no interest is credited; the owner's principal is not reduced because of the index decline. The cap would only matter in an up year, limiting an above-cap gain.

10. Which statement best describes a single premium annuity?

A single premium annuity is purchased with one lump-sum payment. A flexible premium annuity, by contrast, allows the owner to make additional contributions over time within contract limits.

11. By definition, a single premium immediate annuity (SPIA) must begin making payouts to the annuitant no later than:

An immediate annuity, including a SPIA, must begin making periodic payouts within one year of purchase, which is what distinguishes it from a deferred annuity. The 59½ rule is a tax rule about early-withdrawal penalty, not a payout-start rule.

12. Which annuity settlement option produces the largest periodic payment for a given premium, all else equal?

Straight life produces the highest periodic payment because payments end at the annuitant's death, with nothing payable to a survivor or beneficiary. Joint and survivor and any form with a guarantee or refund must cost something, so they lower the per-payment amount.

13. A married couple wants lifetime income that continues to whichever spouse lives longer. Which annuity settlement option is the most common fit?

Joint and survivor pays as long as either annuitant is alive, with the survivor commonly receiving 100%, 75%, or 50% of the original payment. It is the most common payout choice for married couples seeking lifetime income for both.

14. What is the additional IRS penalty (on top of ordinary income tax) for taking a taxable withdrawal from a non-qualified annuity before age 59½?

Internal Revenue Code §72(q) imposes a 10% additional tax on the taxable portion of a withdrawal taken from an annuity before age 59½. This penalty is added to the ordinary income tax on the gain portion of the early distribution.

15. Which of the following exchanges is NOT permitted on a tax-free basis under Internal Revenue Code Section 1035?

Section 1035 permits tax-free exchanges life-to-life, life-to-annuity, and annuity-to-annuity. The one direction not allowed is annuity-to-life, because that would convert taxable annuity gains into a life insurance death benefit and undercut the tax rules.

16. Which statement about a typical annuity surrender charge schedule is correct?

Annuity surrender charges typically follow a declining schedule such as 7%, 6%, 5%, 4%, 3%, 2%, 1%, 0%, ending at zero after the surrender period. The schedule is a contract provision, not an IRS rule.

17. During the accumulation phase of a non-qualified deferred annuity, how is the interest credited inside the contract treated for federal income tax purposes?

An annuity's accumulation phase enjoys tax deferral: interest, dividends, and gains credited to the contract are not taxed each year. They are taxed only when withdrawn, generally as ordinary income on the gain portion.

18. Which of the following is NOT one of the eligible group categories for group life insurance in California?

California law lists employer-employee groups, labor unions, associations, and debtor-creditor groups as eligible categories. A random collection of unrelated individuals with no common organizational tie does not qualify because there is no master sponsor and no objective definition of the group.

19. If the owner of a deferred annuity dies during the accumulation phase, before annuitization begins, who normally receives the contract's remaining value?

During accumulation the named beneficiary receives the contract's remaining value if the owner dies. The annuitant is the measuring life for payouts, not the recipient of a death benefit, and insurers do not keep the value when an owner dies before annuitization.

20. An employee with group life coverage dies 10 days after leaving the job, having not yet applied for conversion. What is the insurer's obligation?

Death during the 31-day conversion window after group coverage ends is paid as if the conversion had already been completed, even if no individual policy was actually issued. This is a statutory protection in California group life law.