Alu 202 - Mid-Year Practice Exam (Lion's Street) Questions With Verified Answers Latest Update 2026

ALU 202 - MID-YEAR PRACTICE EXAM (LION'S STREET) QUESTIONS WITH VERIFIED ANSWERS LATEST UPDATE 2026 All of the following are financial objectives of a well-planned estate EXCEPT: 1) maximized wealth 2) tax savings 3) income replacement 4) appropriate asset ownership - Answers 3) income replacement A legal agreement whereby property is held and managed for the welfare of the beneficiary is: 1) estate 2) trust 3) situs 4) partnership - Answers 2) trust The basis from which to determine whether an individual is subject to the estate tax is: 1) taxable estate 2) fair market value of the personal property 3) total income 4) business assets only - Answers 1) taxable estate All of the following statements regarding special use valuation are correct EXCEPT: 1) Some property is taxed based upon potential uses 2) Property value is assessed according to its current use 3) The value of stocks/bonds are the price upon the date of death 4) Life insurance products set aside for the benefit of the decedent's estate are taxed as part of the estate - Answers 1) Some property is taxed based upon potential uses Examples of income with respect to the decedent (IRD) include all of the following EXCEPT: 1) uncollected lottery winnings 2) outstanding stock dividends 3) accounts receivables from a cash basis sole proprietor 4) gains received from the sale of the property - Answers 4) gains received from the sale of the property All of the following are factors to consider in a charitable giving application for life insurance EXCEPT: 1) past history of charitable contributions 2) amount of annual contributions 3) the state in which the charitable trust was established 4) the annual premium as a percentage of client's annual income - Answers 3) the state in which the charitable trust was established Foreign assets owned by former US citizens: 1) do not generate estate tax once US citizenship is renounced 2) generate a decreasing proportional estate tax for 10 yrs after US citizenship is renounced 3) are completely exempt from estate taxes if all assets are located outside of the US 4) generate an increasing proportional estate tax for 10 yrs after renouncing US citizenship - Answers 2) generate a decreasing proportional estate tax for 10 yrs after US citizenship is renounced All of the following are characteristics of the Irrevocable Trust EXCEPT: 1) trust assets are not vulnerable to the grantor's creditors 2) assets removed from the estate and put into the trust reduce the size of the estate and the estate tax 3) grantor retains incident of ownership of the trust 4) income generated by the trust assets is taxed to the trust, often at a lower rate than received by the grantor - Answers 3) grantor retains incident of ownership of the trust All of the following statements regarding the rule against perpetuities are correct EXCEPT: 1) Certain charitable trusts can exist for an unlimited period of time 2) Private trusts can exist for a period not to exceed 21 yrs after the creation of the trust 3) Public trusts cannot exist for more than 21 yrs after creation 4) Charitable trusts must not name a specific individual or individuals are beneficiary - Answers 3) Public trusts cannot exist for more than 21 yrs after creation All of the following are valid reasons for purchasing life insurance on an elderly individual EXCEPT: 1) estate transfer 2) long term care needs 3) estate creation 4) final expenses - Answers 3) estate creation All of the following statements regarding charitable trusts are correct EXCEPT: 1) It's a type of revocable trust 2) Assets placed in are managed on behalf of the charity 3) The life insurance policy on the grantor can be made an asset of the trust 4) It's not subject to the rule against perpetuities - Answers 1) It's a type of revocable trust All of the following are allowable deductions when calculating the adjusted gross estate EXCEPT: 1) funeral expenses 2) membership dues 3) medical expenses 4) mortgage debt - Answers 2) membership dues Which of the following statements regarding the purpose of life insurance in estate planning is/are correct? A) Life insurance can replace assets lost due to estate transfer costs B) It can transfer assets such as the purchase of an illiquid asset from the estate with the death proceeds C) Life insurance can increase assets, as happens in private placement insurance - Answers All are correct Which of the following is/are jurisdictional premises that can trigger the imposition of estate tax? A) citizenship B) residency C) type of asset owned - Answers A) citizenship B) residency Which of the following statements regarding offshore trusts is/are correct? A) Some foreign jurisdictions are "tax havens" B) Offshore trusts are still subject to rule against perpetuities C) Life insurance is an ideal vehicle to use in conjunction with an offshore trust - Answers A) Some foreign jurisdictions are "tax havens" C) Life insurance is an ideal vehicle to use in conjunction with an offshore trust All of the following statements regarding family limited partnerships (FLP) are correct EXCEPT: 1) There are two classes of partners 2) Limited partners are typically children or younger family members 3) The major advantage is the liability protection against creditors 4) General partners are not usually involved in the day-to-day management - Answers 4) General partners are not usually involved in the day-to-day management The life table that reports the actual death rates for a group of individuals born around the same time is a: 1) group life table 2) cohort life table 3) period life table 4) population life table - Answers 2) cohort life table All of the following statements regarding the ultimate period of the basic insured lives tables are correct EXCEPT: 1) The mortality rate exceeds that of the general population 2) It's the period that follows the select period 3) It reflects the residual effect of socioeconomic status in underwriting 4) It represents individuals of various ages who have kept their life insurance in force for more than 25 yrs - Answers 1) The mortality rate exceeds that of the general population Which of the following statements regarding individual annuity tables is/are correct? A) They represent the mortality expected for annuitants B) They have the highest mortality rates of any insured lives mortality table C) They represent the mortality of healthy individuals having the greatest longevity - Answers A) They represent the mortality expected for annuitants C) They represent the mortality of healthy individuals having the greatest longevity The insured lives mortality table used to establish life insurance policy reserves is: 1) group life 2) standard and ordinary 3) individual annuity 4) basic - Answers 2) standard and ordinary All of the following statements regarding population life tables are correct EXCEPT: 1) They are based on death rates calculated for large segments of the population 2) It includes both smokers and non-smokers 3) It distinguishes between the employed and the unemployed 4) They are often segmented by gender - Answers 3) It distinguishes between the employed and the unemployed The insured lives mortality table that will typically have the lowest mortality rate is: 1) individual annuity 2) group life 3) pension life 4) select and ultimate - Answers 1) individual annuity Which of the following are considered when life insurance companies are setting price assumptions? A) inflation B) anticipated lapse rates C) interest rates - Answers All are correct In calculating mortality rates, the symbol "dx" refers to the number of individuals: 1) applying for insurance during a specified interval 2) dying during a specific interval 3) exposed to the risk of dying 4) alive at the beginning of a specified interval - Answers 2) dying during a specific interval Life tables based on death rates calculated for large segments of the population without regards to individual health, socioeconomic or employment status are called: 1) period life tables 2) generation tables 3) population tables 4) basic tables - Answers 3) population tables The life table that has the highest mortality rate is: 1) population 2) group life 3) standard and ordinary 4) disabled life - Answers 4) disabled life Many life insurance mortality tables are expressed in terms of: 1) inflation rate 2) monetary value of claims 3) death rates 4) lapse rates - Answers 2) monetary value of claims The difference in death rates observed in the population having a unique impairment compared to the death rates expected in a closely matched population without the impairment is: 1) substandard rating 2) relative mortality ratio 3) excess death rate 4) table rating - Answers 3) excess death rate If the excess mortality risk is thought to remain constant throughout duration of the policy then the following should apply: 1) flat extra premium 2) table rating 3) temporary flat extra 4) no rating - Answers 1) flat extra premium After a policy is issued, the effect of underwriting in the select period usually lasts for: 1) 5 yrs 2) 10-15 yrs 3) 20-25 yrs 4) 30+ yrs - Answers 3) 20-25 yrs The following are all examples of an insured lives table EXCEPT: 1) population 2) basic 3) group 4) annuity - Answers 1) population Population life tables are often segmented by which of the following? A) gender B) geography C) health status - Answers A) gender B) geography The equation used to calculate the interval mortality ratio is: 1) mrx = qx - qx' 2) mrx = qx + qx' 3) mrx = qx / qx' 4) mrx = qx x qx' - Answers 3) mrx = qx / qx' The best source of data to calculate substandard rates is: 1) clinical studies 2) inter-company mortality analysis 3) reports released by the society of actuaries (SOA) 4) individual company death claims - Answers 2) inter-company mortality analysis An example where one would use a temporary flat extra to cover excess risk is: 1) private aviation 2) obesity 3) diabetes 4) cancer - Answers 4) cancer Underwriting criteria generally used in the pricing of preferred policies include which of the following? A) blood pressure B) cholesterol C) family history - Answers All are correct All of the following are pricing components of life insurance established by regulation EXCEPT: 1) reserve basis 2) tax law 3) nonforfeiture laws 4) asset risk - Answers 4) asset risk The relationship of mortality savings from a requirement to the cost of administering the particular requirement is: 1) surplus 2) protective value 3) uniquely protective 4) reserve value - Answers 2) protective value All of the following statements regarding a protective value study of underwriting requirements are correct EXCEPT: 1) It should evaluate which requirement identified the underlying impairment 2) It should consider the proposed insured's behavior in accepting or rejecting the offered policy 3) It should measure the difference between select and ultimate mortality 4) It should ensure that the offered product is "at the market" - Answers 3) It should measure the difference between select and ultimate mortality A safety net that needs to be provided beyond the level of reserves being held in case a company's mortality experience turns out to be much worse than expected is referred to as: 1) risk-based capital (RBC) 2) reserve basis 3) statutory reserve 4) deferred acquisition cost - Answers 1) risk-based capital (RBC) Pricing components include which of the following? A) mortality B) lapse rates C) exceptions - Answers A) mortality B) lapse rates The insurance industry of today is dominated by: 1) variable products 2) index products 3) term products 4) whole life products - Answers 3) term products The single largest expense related to a life insurance product is: 1) mortality 2) lapse rates 3) expense levels 4) interest rate - Answers 1) mortality In Canada, statutory reserve standards are established by: 1) federal regulation 2) insurance companies 3) provincial regulation 4) NAIC legislation - Answers 1) federal regulation Pricing components of a life insurance product include which of the following? A) mortality costs B) lapse rates C) interest rates - Answers All are correct