CHapter4 Quiz: Primerica Missed Qz Quest.

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Q: All of following statements concerning use of life insurance as an Executive Bonus are correct EXCEPT:

A: the policy is owned by the company

Q: which of following is NOT true of life settlements?

A: the seller must be terminally ill;

Q: which of following is best reason to purchase life insurance rather than annuities?

A: to create an estate

Q: What is purpose of key person insurance?

A: to lessen risk of financial loss b/c of death of key employee

Q: For a retirement plan to be qualified, it must be designed for whose benefit?

Employees

# of required eligible employees to be included in a noncontributory plan?

100%

Q: Which of following is required # of participants in a contributory group plan?

A: 75%

Characteristics of Executive Bonuses:

-employee has full rights to policy, -since employer treatment premium payment as bonus amount is tax deductible to employer & income taxable to employee; -is assumed if employee not willing to accept conditions, employer not provide benefit; -are not subject to plan limits established by IRS for qualified plans, so considered a nonqualified benefit plan

True things about federal tax advantages of a qualified plan?

-employer contributions are tax deductible as ordinary biz; -Funds accumulate on a tax-deferred basis; -employee & employer contributions not counted as income to employee for income tax purposes

All of following statements concerning use of life insurance as an Executive Bonus are correct?

-employer pays a bonus to a selected employee to fund policy; -it is considered a nonqualified employee benefit; -any type of insurance policy may be used.

Know This! When converting from grp life to individ life insurance...?

-evidence of insurability is not required

General rule for premiums paid for life insurance?

-not tax deductible, Exception= when an employer buys group term life insurance for his employees since it is considered a business expense

Dividend are

-return of unused premiums, -not considered income for tax purposes; -dividends left w/ insurer to accumulate interest, interest earned is subject to taxation as ordinary income each year interest is earned- even if not paid to policyowner

Life settlements?

-unlike viatical settlements, seller does not need to be terminally ill; -usually involve policies w/ face amt of $250K or more; -"Key-person" coverage; -Corp owned policies, or policies representing excess coverage no longer needed; & -could be sold for amt greater than current cash value

# of required of required eligible employees to be included?

75%

A qualified plan

= approved by the IRS, which then gives both employer & employee benefits in deductibility of contributions & tax deferral of growth.

Executive bonus def?

=an arrangement where employer offers to give employee a wage in crase in amount of premium on a new life insurance policy on employee

LIfe expectancy def?

=an important concept in life settlement contracts; -refers to a calculation based on average # months insured is projected to live d/t medical history & mortality factors; -an arithmetic mean

Q: In order to qualify for conversion from a grp life policy that has been terminated to individ policy of same coverage, a person must have been insured under the group plan for how many years?

A: 5 Note: if master contract is terminated, every individ who has been on plan for at leat 5yr will be allows to convert to individ insurance of same coverage

Q: Which of following terms is used to name the nontaxed return of unused premiums?

A: Dividend

Q: Which of following is an eligibility requirement for all Social Security Disability Income benefits?

A: Have attained fully insured status

Q: which of following terms means a result of calculation based on after # of months insured os projected to live d/t medical history & mortality factors?

A: Life expectancy

Q: In which of following instances would premium be tax deductible?

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

Q: Premiums paid by employer in biz life insurance policy are

A: Tax deductible by employer

Q: Which of following is true re: taxation of accelerated benefits under a life insurance policy?

A: They are tax free to terminally ill insured Note: with chronically ill accelerated benefits paid to insured tax free up to a limit.

Q: All of following are TRUE of federal tax advantages of a qualified plan EXCEPT:

A: at distribution, all amounts received by employee are tax free; Note: funds in a qualified plan accumulate on a tax-deferred basis; however, at distribution any amt recv'd by employee treated as ordinary income for tax purposes

Q: in grp life policies, a certificate of insurance is given to

A: each insured person Note: policyholder hold the rights/privileges of grp policy

Q: Which of following is TRUE of a qualified plan?

A: it has a tax benefit for both employer & employee


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