Chapter 4: Taxes, retirement, and other insurance concepts
What % of a company's employees must take part in a noncontributory group life plan
100%
What is the number of credits required for fully insured status for Social Security disability benefits
40
Who can make a fully deductible contribution to a traditional IRA
An individual not covered by an employer-sponsored plan who has earned income
Which of the following is an eligibility requirement for all social security disability income benefits
Have attained fully insured status
When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income
Interest only
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then
The benefit is received tax free
A key person insurance policy can pay for which of the following
costs of training a replacement
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
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 government approval standards. This annuity plan is
A nonqualified annuity plan
Who is a third-party owner
A policyowner who is not the insured
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
Which of the following is true regarding taxation of dividends in participating policies
Dividends are not taxable
Death benefits payable to a beneficiary under a life insurance policy are generally
Not subject to income taxation by the federal government
A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a
cross-purchase plan
When an employee terminates coverage under a group insurance policy, coverage continues in force until
for 31 days
Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors
life expectancy
What is the primary purpose of a 401(k) plan
retirement
An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover?
$10,000 no tax consequence
To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters?
6 credits
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" refer to in a life insurance policy
Cash values can be borrowed at any time
In a direct rollover, how is the money transferred from one pan to a new one
From trustee to trustee
If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is
Fully insured
Life insurance death proceeds are
Generally not taxed as income
A 60-year-old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true
The amount of the distribution is reduced by the amount of a 20% withholding tax
Which of the following is an example of liquidity in a life insurance contract
The cash value available to the policyowner
Which of the following is INCORRECT concerning a noncontributory group plan
The employees receive individual policies
Which of the following best defines the "owner" as it pertains to life settlement contracts
The policyowner of the life insurance policy
Which of the following is NOT true of life settlements
The seller must be terminally ill
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
Third-party ownership
An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize?
Viatical settlement
What is the name of the insured who enters into a viatical settlement
Viator
All of the following are characteristics of group life insurance EXCEPT
Premiums are determined by the age, sex and occupation of each individual certificate holder
An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy
She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is
Modified endowment contract
What is the official name for the Social Security program
Old Age Survivors Disability Insurance
Which of the following is correct concerning the taxation of premiums in a key=person life insurance policy
Premiums are not tax deductible as a business expense
In which of the following instances would the premium be tax deductable
Premiums paid by an employer on a $30,000 group term life insurance plan for employees
All of the following are business uses of life insurance EXCEPT
Funding against company's general financial loss
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
Those who have been insured under the plan for at least 5 years
All of the following statements concerning an employer sponsored nonqualified retirement plan are true EXCEPT
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
To create an estate
What is the purpose of the Seven-pay test?
it determines if the insurance policy is a MEC
If a retirement plan or annuity is "qualified," this means
it is approved by the IRS
Traditional IRA contributions are tax deductible based on which of the following
owners income
A life insurance policy used to fund an agreement that contractually establishes the intent of someone to purchase a business upon the insured owner's death is a
Buy-sell agreement
What is the purpose of key person insurance
To lessen the risk of financial loss because of the death of a key employee
Social Security was created to provide all of the following benefits EXCEPT
Unemployment income
In terms of Social Security, what is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called
Blackout period
All of the following are personal uses of life insurance EXCEPT
Buy-sell agreement
Which of the following would be considered a nonqualified retirement plan
Split-dollar plan
A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as
Survivor protection
The premiums paid by the employer in a business life insurance policy are
Tax deductible by the employer
In a life settlement contract, whom does the life settlement broker represent
The owner
All of the following are true of key person insurance EXCEPT
The plan is funded by permanent insurance only
Which of the following is TRUE of a qualified plan
It has a tax benefit for both employer and employee.
Who is the owner and who is the beneficiary on a key person life insurance policy
The employer is the owner and beneficiary
An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements in INCORRECT
The insured may choose to convert to term or permanent individual coverage
Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE
Withdrawals are not taxable
Which of the following is NOT an example of a business use of life insurance
Workers compensation
