Ch.4: Retirement and other Insurance Concepts
what are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2
10% penalty
what are the personal uses of life insurance
Survivor protection, estate creation and conservation, cash accumulation and liquidity
Group life insurance policies are written as what type of insurance?
annually renewable term
An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his
attained age
What does liquidity mean in a life insurance policy?
availability of cash value
life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate, what is this called
estate conservation
If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion, if any, will be taxed?
interest only
When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?
interest only
which of the following is NOT true regarding a non qualified retirement plan
it needs IRS approval
all of the following are examples of third-party ownership of a life insurance policy except
an insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan
Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?
any form life insurance
which of the following would describe a legal document which would dictate who can buy a decreased partner's share of a business and for what amount
buy-sell agreement
what is the general taxation rule for death benefits payable to a the beneficiary of a life insurance policy
death benefits are generally not subject to income taxes
what is required to qualify an individual to contribute to a traditional IRA
earned income
For a retirement plan to be qualified, it must be designed for whose benefit?
employee
for a retirement plan to qualified, it must be designed for the benefit of
employees
who qualifies for tax-sheltered annuities or 403(b) plans
employees of nonprofit organizations under section 501(c)(3) and employees of public school systems
what is the main advantage of converting from group life insurance to individual coverage
evidence of insurability is not required
which of the following best defines the "owner" as it pertains to life settlement contracts
the policy owner of the life insurance policy
what is the penalty for excessive contributions to a traditional IRA
6%
which of the following is the required number of participants in a contributory group plan
75%
what is the primary purpose of a 401(k) plan
Provide retirement income
all of the following are personal uses of life insurance except
buy-sell agreeement
According to the taxation rules of life insurance policies, how are cash value increases taxed?
cash value growth is tax deffered
SIMPLE plans are available to groups of how many employees?
no more than 100
When planning for survivor protection in life insurance, what needs to be considered?
the insured's current assts, liabilities, and survivor's needs
in a life settlement contract, whom does the life settlement broker represent
the owner
If a retirement plan is 'qualified', what does that mean?
the plan has favorable tax treatment
social security was created to provide all of the following except
unemployment income
If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually?
$3,000
what percentage of a company's employees must take part in a noncontributory group life plan
100%
Who would be considered a third-party owner?
An individual or an entity who is not the insured
What qualified plan is suitable for the self-employed?
HR-10 or Keogh
what are some examples of qualified plans
IRA, 401(k), HR10 (Keogh), SEP, SIMPLE
The advantage of qualified plans to employers is
Tax-deductible contributions
who owns a group life insurance contract
The employer (also known as the sponsor of the group)
When would life insurance policy proceeds be included in the insured's taxable estate?
when there is an incident of ownership at the time of death
If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?
whole life
A key person insurance policy can pay for which of the following?
costs of training a replacement
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?
executive is the owner and the executive pays the premium
Who may contribute to an HR-10 plan?
A self-employed individual
what type of policy is typically issued without proof of insurability from the insured
group policy
what type of policy issue certificates of insurance to the insureds
group policy
what are the characteristics of the group that underwriters will consider before issuing a group life policy
group's purpose, size, financial strength and turnover
in life insurance policies, cash value increases
grow tax deferred
Why are dividends in life insurance policies not taxable?
dividends are not considered income for tax purposes, they are a return of unused premium
In what form of payment must the contributions to a traditional IRA be made?
in cash (or cash equivalents)
which of the following terms means result of calculation based on the average number of months the insured is projected to live due to medical history and mortality facotrs
life expectancy
which of the following statement is TRUE concerning whole life insurance
lump-sum death benefit are not taxable
If a life insurance policy develops cash value faster than a 7 pay whole life contract, it is?
modified endowment contract
Is the death benefit of a life insurance policy taxed to the beneficiary if it's received as a lump sum?
no lump sum benefits are received tax free
In qualified plans, are employer contributions taxed as income to the employees?
no, employer contributions are not taxed as income to the employees
Upon surrender of a life insurance policy, what portion of the cash value will be taxed?
only the portion in excess of the premium paid
all of the following are characteristics of group life insurance except
premiums are determined by age, sex, and occupation of each individual certificate holder
an employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. what is this called
profit sharing plan
what are the three types of social security benefits
retirement, disability, survivors
group life insurance is a single policy written to provide coverage to members of a group, which of the following statements concerning group life is correct
100% participation of members is required in noncontributory plans
what is the main purpose of the 7-pay test
To determine if a life insurance policy is a Modified Endowment Contract
what is the purpose of key person insurance
To lessen the risk of financial loss because of the death of a key employee
what is the name for an overfunded life insurance policy
a modified endowment contract (MEC)
