CH4 VA State and Health

What type of life insurance is most commonly used for group plans? A) Annually renewable term B) Whole life C) Flexible premium whole life D) Decreasing term

A) Annually renewable term

What percentage of a companys employees must atke part in a noncontributory group life plan? A) 0% B) 25% C) 75% D) 100%

D) 100%

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? A) Each member covered receives a policy B) Coverage cannot be converted when an individual leaves the group C) Premiums are determined by age, occupation, and individual underwriting. D) 100% participation of members is required in noncontributory plans

D) 100% participation of members is required in noncontributory plans

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is A) An Accelerate policy. B) An endowment. C) A Multiplicative Policy. D) A Modified Endowment Contract.

D) A Modified Endowment Contract.

--QUALIFIED-- -Contributions currently TAX DEDUCTIBLE - Plan APPROVED by the IRS - Plan CANNOT DISCRIMINATE - Earnings grow TAX DEFERRED - ALL WITHDRAWALS are TAXED

--NON-QUALIFIED-- - Contributions NOT currently TAX DEDUCTIBLE - Plan DOES NOT NEED IRS APPROVAL - Plan CAN DISCRIMINATE - Earnings grow TAX DEFERRED - EXCESS over cost basis is TAXED

Who is a third-party owner? A) A policyowner who is not the insured. B) An insurer who issues a policy for two people C) An employee in a group policy D) An irrevocable beneficiary

A) A policyowner who is not the insured.

Which of the following is the required number of participants in a contributory group plan? A) 25% B) 50% C) 75% D) 100%

C) 75%

If a retirement plan or annuity is "qualified", this means A) It is noncancellable B) It has a favorable tax treatment. C) It has a penalty for early withdrawal. D) It accepts after-tax contributions.

B) It has a favorable tax treatment.

Scott has an outstanding policy loan. What will the insurer most likely do? A) Sue Scott B) Cancel his policy C) Charge interest on the loan D) Report Scott to the state authorities

C) Charge interest on the loan

Which of the following would be considered a nonqualified retirement plan? A) Roth IRA B) Split-dollar plan C) 401(k) D) Keogh plan

B) Split-dollar plan

An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true? A) He will have to pay a penalty if he is younger than 59.5 B) He will have to pay a penalty regardless of his age. C) He will not have to pay a penalty, regardless of his age. D) He cannot withdraw money from his MEC before age 59.5

A) He will have to pay a penalty if he is younger than 59.5

The advantage of qualified plans to employers is A) Tax deductible contributions B) Tax free earnings C) Do not have to provide lump sum payments D) Taxable contributions

A) Tax deductible contributions

Which type of retirement account allows contributions to continue beyond age 70.5 and does not force distributions to start at age 70.5? A) Flexible IRA B) Standard IRA C) Traditional IRA D) Roth IRA

D) Roth IRA

If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy/ A) It is automatically taxable. B) It is only taxable if the cash value exceeds the amount paid for the premiums C) It is not considered to be taxable D) it is taxable only if it exceeds the amounts paid for premiums by 50%

B) It is only taxable if the cash value exceeds the amount paid for the premiums

Which of the following is true regarding taxation of accelerated benefits under a life insurance policy? A) They are always taxed B) There is 10% penalty for early distribution of the death benefit. C) They are tax free to terminally ill insured. D) They are always taxable to chronically ill insured

C) They are tax free to terminally ill insured.

An employee quits her job where she has a balance of $10,000 in her qualified plan. if she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer? A) $10,000, tax on growth only B) $10,000, no tax consequence C) $8,000, no tax consequence D) $8,000, tax on growth only

B) $10,000, no tax consequence During an IRA direct transfer (or direct rollover), the full amount gets reinvested from one plan to the other

The minimum number of credits required for partially insured status is A) 4 B) 6 C) 10 D) 20

B) 6 To be considered partially insured, an individual must have earned 6 credits during the last 13-quarter period

Which of the following is INCORRECT regarding whole life insurance? A) Premiums are not tax deductible. B) Dividend interest is taxable. C) Policy loans are tax deductible. D) Cash value exceeding the premiums paid is taxable.

C) Policy loans are tax deductible.

In order to qualify for conversion from a group life policy to an individual policy of the same coverage, a person must have been insured under the group plan for how many years? A) 1 B) 3 C) 5 D) 10

C) 5

Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner? A) Family term rider B) Third-party ownership C) An irrevocable beneficiary D) A buy-sell agreement

B) Third-party ownership

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated? A) Those who have been insured under the plan for at least 5 years B) Those who have worked in the company for at least 3 years C) Those who have dependents D) Those who have no history of claims

A) Those who have been insured under the plan for at least 5 years

Which of the following is INCORRECT concerning a noncontributory group plan? A)The employees receive individual policies. B) They help to reduce adverse selection against the insurer. C) They require 100% employee participation. D) The employer pays 100% of the premiums.

A)The employees receive individual policies. The employer receives a master policy, and employees receive a certificate of insurance.

Which of the following would be a unique benefit life insurance has over other types of insurance? A.) Its proceeds are paid to the beneficiary. B.) It performs the function of cash accumulation. C.) It is a contract between the policyowner and the insurer. D.) It guarantees income when needed.

B.) It performs the function of cash accumulation. Life insurance has a unique advantage over other types of insurance: it performs the function of cash accumulation.

All of the following are general requirements of a qualified plan EXCEPT A) The plan must be for the exclusive benefits of the employees and their beneficiaries. B) The plan must be permanent, written and legally binding. C) The plan must provide an offset for social security benefits. D) The plan must be communicated to all employees.

C) The plan must provide an offset for social security benefits.

The number of credit required for fully insured status is A) 4 B) 10 C) 13 D) 40

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Which of the following statements is true concerning whole life? A) Premiums are tax-deductible B) Policy loans are tax-deductible C) Lump-sum death benefits are not taxable. D) Dividend interest is not taxable.

C) Lump-sum death benefits are not taxable. Dividend interest is taxable; policy loans are not tax-deductible, and premiums are not tax-deductible

All of the following statements concerning an employer sponsored nonqualified retirement plan are true EXCEPT A) The plan can discriminate as to who may participate. B) The plan is not approved for favorable tax treatment by the IRS. C) The employer can receive a current tax deduction for any contributions made to the plan. D) The plan is a legal method of accumulating money for retirement needs.

C) The employer can receive a current tax deduction for any contributions made to the plan.

Which of the following is the best reason to purchase life insurance rather than annuities? A.) To create regular income payments B.) To liquidate a sum of money over a lifetime C.) To create an estate D.) To liquidate a sum of money over a period of years

C.) To create an estate With insurance, the death benefit creates an immediate estate should the insured die.

Which of the following is true of a qualified plan? A) It does not need to have a vesting schedule? B) It may discriminate in favor of highly paid employees. C) It may allow unlimited contributions. D) It has a tax benefit for both employer and empoloyee

D) It has a tax benefit for both employer and empoloyee

In which of the following instances would the premium be tax deductible? A) Premiums paid by an individual on his/her own life insurance B) Premiums paid by a mother on her son's policy C) Premiums paid by an employer on the life of a key person D) Premiums paid by an employer on a $30,000 group term life insurance plan for employees.

D) Premiums paid by an employer on a $30,000 group term life insurance plan for employees.

Which of the following describes the tax advantage of a qualified retirement plan? A) Employer contributions are deductible as a business expense when the employee receives benefits B) Employer contributions are not taxed when paid out to the employee. C) The earnings in the plan accumulate tax deferred D) Distributions prior to age 59.5 are tax deductible

C) The earnings in the plan accumulate tax deferred

Jane is eligible for full death, retirement, and disability benefits under Social Security. Her worker status with Social Security is A.) Completely insured. B.) Fully insured. C.) Partially insured. D.) Correctly insured.

B.) Fully insured. A worker is fully insured under Social Security if he/she has accumulated the required number of credits based on his/her age.

The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unavailable to lower-echelon employees. This plan would be funded with before-tax corporate dollars, and it does not meet governmental approval standards. This annuity plan is A) Illegal B) A nonqualified annuity plan. C) An executive annuity plan D) Subject government standards

B) A nonqualified annuity plan.

Carol is insured under her employer's group life insurance plan at her place of employment. All of the following statements about her coverage are true EXCEPT A) If carol quits, she may within 31 days, request that her coverage be converted to an individual policy. B) Should Carol convert her coverage, the premium will be based upon her attained age. C) Carol could should what type of insurance her conversion policy provided (Term or Permanent). D) Carol would not need to prove insurability for a conversion policy.

C) Carol could should what type of insurance her conversion policy provided (Term or Permanent).

Social Security was created to protect against all of the following EXCEPT A) Bad Investment choices B) Sickness in old age C) Premature death D) Disability

A) Bad Investment choices

For a retirement plan to be qualified, it must be designed for the benefit of A) Employees B) Key employee C) Employer D) IRS

A) Employees

In a direct rollover, how is the money transferred from one plan to the new one? A) From trustee to trustee B) From trustee to the participant C) From the participant to the new plan D) From the original plan to the original custodian

A) From trustee to trustee

All of the following are examples of third-party ownership of a life insurance policy EXCEPT A) An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. B) An insured couple purchases a life insurance policy insuring the life of their grandson C) A company purchases a life insurance policy on their manager, who is an important part of the operation. D) When an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company.

A) An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.

What is the official name for the Social Security program? A) Qualified Pension Plan B) Old Age Survivor Disability Insurance C) Social Insurance Program D) Defined Benefit Retirement Insurance

B) Old Age Survivor Disability Insurance

Ted and Fred are attorneys at law and operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose A) HR-10 (Keogh Plan). B) Section 457 Deferred Compensation Plan. C) 403(b) PLAN. D) 401(k) plan.

A) HR-10 (Keogh Plan). HR-10 (Keogh Plans) are plans specifically for self-employed and their employees.

An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits? A) The entire benefit will be receive tax free. B) The entire living benefit is considered taxable income. C) A portion of the benefit up to a limit is tax free; the rest is taxable income. D) Principal is tax free, but interest is taxed.

C) A portion of the benefit up to a limit is tax free; the rest is taxable income.

What is the main purpose of the Seven-pay Test? A) It determines if the insurance policy is an MEC. B) It requires level premium payments for 7 years. C) It ensures that the policy benefits are paid out in 7 years. D) It guarantees interest minimum.

A) It determines if the insurance policy is an MEC.

The cash value under a modified endowment contract (MEC) accumulates on a/an A) Tax-deferred basis B) LIFO basis C) Income-taxable basis D) Post-tax basis

A) Tax-deferred basis

An individual has been contributing to a retirement account after taxes are taken out of his paycheck. His financial adviser told him that he will be allowed to make contributions after age 70.5. The account owner does not have to pay taxes on the growth of his account. What type of retirement account is it? A) Traditional IRA B) Roth IRA C) 403(b) D) Simplified Employee Pension Plan

B) Roth IRA

How is Social Security funded? A) Taxes imposed on a worker's earned income B) State payroll taxes C) Sales tax D) Federal grant money

A) Taxes imposed on a worker's earned income

For an individual who is NOT covered by an employer-sponsored plan, IRA contributions A) Will be tax deductible. B) Will be deducted based on the income level. C) Are never tax deductible. D) Are partially tax deductible depending on the income level.

A) Will be tax deductible.

A tax sheltered annuity is special tax-favored retirement plan available to A) certain groups of employees only, such as public educators, B) Anyone C) Certain age groups only D) Certain groups depending on factors such as race, gender and age

A) certain groups of employees only, such as public educators,

Another name for a Keogh Plan is A.) HR 10. B.) 401 K. C.) SEP. D.) Business IRA.

A.) HR 10. An HR 10 plan is also known as a Keogh plan.

Which of the below statements if FALSE concerning a Modified Endowment Contract (MEC)? A) MEC's lose some of the favorable tax treatment of distributions. B) The policyholder can receive distributions at any time without being penalized. C) Distributions before age 59.5 have a penalty of 10% on the gain in the policy D) Policy loans are taxable distributions

B) The policyholder can receive distributions at any time without being penalized.

Employer contributions made to a qualified plan A) Have no vesting requirement B) Are taxable as salary C) Are subject to vesting requirements. D) Are taxable

C) Are subject to vesting requirements.

In life insurance policies, cash value increases A) Are taxed annually B) Are only taxed when the owner reaches age 65. C) Grow tax deferred. D) Are sales-taxable.

C) Grow tax deferred.