chapter 4 taxes, retirement and other insurance concepts

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?

$10,000, no tax consequence

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?

$3,000 The difference between the premiums paid and the cash value would be taxable. In this example, the difference between the premiums paid ($15,000) and the cash value ($18,000) is $3,000.

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.

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

If taken as a lump sum, life insurance proceeds to beneficiaries are passed

Free of federal income taxation.

two attorneys at law and operate their practice asa partnership. they want to start a program through their practice that will provide retirement benefits for themselves and 3 employees. they should choose

HR-10 (Keogh Plan)

an employee is joining a group insurance plan. in order to avoid having to prove insurability, what must the employee do?

Join during the open enrollment period----NOT nothing: proof of insurability is never required in group

Which type of retirement account allows contributions to continue beyond age 70 1/2 and does not force distributions to start at age 70 1/2?

Roth IRA

interest earned on the dividend account is subject to taxation TRUE or FALSE

TRUE

The advantage of qualified plans to employers is

Tax-deductible contributions

All of the following would be different between qualified and non qualified retirement plans EXCEPT a. IRS approval requirements b. Taxation on accumulation c. Taxation of withdrawals d. Taxation of contributions

Taxation on accumulation

all of the following are characteristics of group life insurance plan EXCEPT

There is a requirement to prove insurability on the part of the participants.

what is the purpose of key person insurance?

To lessen the risk of financial loss because of the death of a key employee

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

a tax-sheltered annuity is a special tax-favored retirement plan available to

certain groups of employees only

for a retirement plan to be qualified , it must be designed for the benefit of

employees

All of the following statements are true regarding tax-qualified annuities EXCEPT

employer contributions are not tax deductible

all of the following statements are true regarding group insurance EXCPET

participants in the policy each receive a policy

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

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

Traditional IRA contributions are? Who can makes a fully deductible contribution to a traditional IRA?

tax deductible; an individual not covered by an employer-sponsored plan who has earned income

Which of the following is INCORRECT concerning a noncontributory group plan?

the employees receive individual polices

Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings?

they are tax deferred until withdrawn

which of the following insurance arrangements will be appropriate for a person buying a life insurance policy on a child where the parent is the poilcyowner?

third-party ownership

if 100,000 of life insurance proceeds were sued in a settlement option which paid 13,00 per year for ten years, which would be taxable annually

3,000

Who is a third-party owner?

A policyowner who is not the insured

what type of life insurance is most commonly used for group plans?

Annually renewable term

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.

TRUE or FALSE Key person insurance can only be funded by permanent insurance?

False, may be any type of insurance

which of the following is TRUE of a qualified plan?

It has a tax benefit for both employer and employee.

In a single employer group plan, what is the name of the policy issued to the employer?

Master contract

Tn which of the following instances would the premium be tax deductible

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

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

an individual has been contributing to a retirement account after taxes are taken out of his paycheck. his financial advisor told him hat he will be able to make CONTRIBUTIONS after age 70 1/2. the account owner does not have to pay taxes

Roth IRA

An IRA purchased by a small employer to cover employees is known as a

Simplified Employee Pension Plan (SEP)

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. Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.

which of the following statements about group life is correct?

The cost of coverage is based on the ratio of men and women in the group.

All following are general requirements of a qualified plan EXCEPT

The plan must provide an offset for social security benefits.

An individual has been diagnosed with alzheimers disease he is insured under a life policy with the accelerated benefits rider which of the following is true regarding taxation of the accelerated benefits?

a portion of the benefit to to a limit is tax free; the rest is taxable income

Which of the following statement concerning buy-sell agreements is true?

buy-sell agreement are normally funded with a life insurance policy

when an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called an

executive bonus

in a life settlement contract, whom does the life settlement broker represent

the owner

what is the name of the insured who enters into a vatical settlement?

viator

which of the fowling types of insurance policies would perform the function of cash accumulation?

whole life

which of the following would not qualify for a Keogh plan? -over the age of 25 -whorls for self-employed individual -works 400 hrs per year -has been employed for more than 12 months

works 400 hrs per year----must work 1,000

when an employee terminates coverage under a group policy, coverage continues in force for?

31 days