Colorado Life ExamFX Ch. 4

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? - $10,000 - $3,000 - $13,000 - $7,000

$3000 If $100,000 of life insurance proceeds were used in a settlement option paying $13,000 per year for 10 years, $10,000 per year would be income tax free (as principal) and $3,000 per year would be income taxable (as interest).

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? - $18,000 - $3,000 - $15,000 - $50,000

$3000 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.

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, tax on growth only - $8,000, no tax consequence - $8,000, tax on growth only - $10,000, no tax consequence

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

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

- 100% participation of members is required in noncontributory plans. If the employer pays all of the premium, then all employees must be included.

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. - Subject to government standards. - Illegal. - An executive annuity plan.

- A nonqualified annuity plan. Nonqualified plans are a perfectly legal way for selected employees to receive certain types of benefits. Before-tax corporate dollars can be used for these plans, and they are not subject to government standards. Because of this, however, nonqualified plans contributions are not tax-deductible, unlike with qualified plans.

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

- A policyowner who is not the insured Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.

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? - Principal is tax free, but interest is taxed. - The entire living benefit is considered taxable income. - A portion of the benefit up to a limit is tax free; the rest is taxable income. - The entire benefit will be received tax free.

- A portion of the benefit up to a limit is tax free; the rest is taxable income. When accelerated benefits are paid to a chronically ill insured, they are tax free up to a certain limit. Any amount received in excess of this dollar limit must be included in the insured's gross income.

Who can make a fully deductible contribution to a traditional IRA? - Anybody; all IRA contributions are fully deductible regardless of income level - An individual not covered by an employer-sponsored plan who has earned income - Someone making contributions to an educational IRA - A person whose contributions are funded by a return on investment

- An individual not covered by an employer-sponsored plan who has earned income Individuals who are not covered by an employer-sponsored plan may deduct the amount of their IRA contributions regardless of their income level.

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

- An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.

Employer contributions made to a qualified plan - May discriminate in favor of highly paid employees. - Are after-tax contributions. - Are taxed annually as salary. - Are subject to vesting requirements.

- Are subject to vesting requirements. Qualified plans must have a vesting requirement.

Which of the following is an example of liquidity in a life insurance contract? - The flexible premium - The death benefit paid to the beneficiary - The cash value available to the policyowner - The money in a savings account

- 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 policy can be converted to an individual term insurance policy. - The cost of coverage is based on the ratio of men and women in the group. - The premiums are higher than in an individual policy because there is no medical exam. - The group sponsor receives a Certificate of Insurance.

- The cost of coverage is based on the ratio of men and women in the group. Group life insurance can be converted to an individual whole life, not a term, policy; the group life insurance premiums are usually lower than those of an individual policy; the group sponsor receives a master contract, while the participants receive certificates of insurance. The cost of the coverage is based on the average age of the group and the ratio of men to women.

Which of the following best describes the tax advantage of a qualified retirement plan? - The earnings in a qualified plan accumulate tax deferred. - Distributions prior to age 59½ are tax deductible. - Employer contributions are taxed as income to the employee. - Employer contributions are tax deductible, as long as employee earnings are considered taxable income.

- The earnings in a qualified plan accumulate tax deferred. Contributions are tax deferred, and earnings on the money in the plan accrue on a tax-deferred basis.

To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters? - 4 credits - 40 credits - 10 credits - 6 credits

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

Which of the following is the required number of participants in a contributory group plan? - 50% - 75% - 100% - 25%

75% Under a contributory group plan, an insurer will require that 75% of eligible employees be included in the plan.

If a company has a Simplified Employee Pension plan, what type of plan is it? - A qualified plan for a small business - An undefined contribution plan for large businesses - The same as a 401(k) plan - The same as an IRA, with the same contribution limits

A Simplified Employee Pension (SEP) is a type of qualified plan suited for the small employer or for self-employed. A SEP is an employer-sponsored IRA with an expanded contribution rate up to 25% of compensation or a specified maximum contribution amount.

All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT - Employer contributions are tax deductible as ordinary business expense. - Funds accumulate on a tax-deferred basis. - At distribution, all amounts received by the employee are tax free. - Employee and employer contributions are not counted as income to the employee for income tax purposes.

- At distribution, all amounts received by the employee are tax free. Funds in a qualified plan accumulate on a tax-deferred basis; however, at distribution any amount received by the employee will be treated as ordinary income for tax purposes.

SIMPLE Plans require all of the following EXCEPT - No other qualified plan can be used. - Employees must receive a minimum of $5,000 in annual compensation. - At least 1,000 employees. - No more than 100 employees.

- At least 1,000 employees. A SIMPLE plan is available to small businesses that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous yea

Which of the following statements concerning buy-sell agreements is true? - Premiums paid are deductible as a business expense. - Buy-sell agreements are normally funded with a life insurance policy. - Benefits received are considered income taxable. - Buy-sell agreements pay in the event of a medical emergency.

- Buy-sell agreements are normally funded with a life insurance policy. A buy-sell agreement is simply a contract that establishes what will be done with a business in the event that an owner dies. Buy-sell agreements are normally funded with a life insurance policy.

A tax-sheltered annuity is a special tax-favored retirement plan available to - Anyone. - Certain groups of employees only. - Certain age groups only. - Certain groups depending on factors such as race, gender, and age.

- Certain groups of employees only. A tax-sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education).

Which of the following is true regarding taxation of dividends in participating policies? - Dividends are taxable only after a certain amount is accumulated annually. - Dividends are not taxable. - Dividends are considered income for tax purposes. - Dividends are taxable in some life insurance policies and nontaxable in others.

- Dividends are not taxable. Interest is.

All of the following statements are true regarding tax-qualified annuities EXCEPT - They must be approved by the IRS. - Withdrawals are taxed. - Annuity earnings are tax deferred. - Employer contributions are not tax deductible.

- Employer contributions are not tax deductible. Tax-qualified annuities must be approved by the IRS and allow for tax deductible employer contributions. All withdrawals are taxed and earnings grow tax deferred

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 a(n) - Fraternal association. - Aleatory contract. - Executive bonus. - Key person policy.

- Executive bonus. 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 the Executive Bonus plan, who is the owner of the policy, and who pays the premium? - Board of directors is the owner, and the board of directors pays the premium. - Executive is the owner, and the executive pays the premium. - Company is the owner, and the company pays the premium. - Company is the owner, but the executive pays the premium.

- Executive is the owner, and the executive pays the premium. Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.

In a direct transfer, how is money transferred from one retirement plan to a traditional IRA? - From the original plan to the original custodian - From the participant to the new plan - From trustee to trustee - From trustee to the participant

- From trustee to trustee In a direct transfer, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan.

All of the following are business uses of life insurance EXCEPT - Funding business continuation agreements. - Funding against financial loss caused by the death of a key employee. - Funding against company's general financial loss. - Compensating executives.

- Funding against company's general financial loss. Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees

Which of the following is an eligibility requirement for all Social Security Disability Income benefits? - Have permanent kidney failure - Have attained fully insured status - Be disabled for at least 1 year - Be at least age 50

- Have attained fully insured status Although Social Security offers many benefits, such as retirement, survivors and Medicare, only those who have attained fully insured status are eligible for Disability Income benefits. Contributing to Social Security for 40 quarters (10 years) attains fully insured status.

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? - He will have to pay a penalty regardless of his age. - He will not have to pay a penalty, regardless of his age. - He will have to pay a penalty if he is younger than 59½. - He cannot withdraw money from his MEC before age 59½.

- He will have to pay a penalty if he is younger than 59½. Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract. All withdrawals are subject to taxation on a LIFO basis, and if withdrawals are made earlier than the age of 59½, a 10% penalty is imposed.

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

- It determines if the insurance policy is a MEC. The Seven-pay Test determines whether an insurance policy is "over-funded" or if it's a Modified Endowment Contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.

Which of the following is TRUE of a qualified plan? - It has a tax benefit for both employer and employee. - It may discriminate in favor of highly paid employees. - It does not need to have a vesting schedule. - It may allow unlimited contributions.

- It has a tax benefit for both employer and employee. A qualified plan is approved by the IRS, which then gives both the employer and employee benefits in deductibility of contributions and tax deferral of growth.

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

- It is only taxable if the cash value exceeds the amount paid for premiums. The cash value of a surrendered policy is only considered to be taxable as income if the cash value exceeds the amount of premiums paid for the policy.

Which of the following is NOT true regarding policy loans? - Money borrowed from the cash value is taxable. - An insurer can charge interest on outstanding policy loans. - A policy loan may be repaid after the policy is surrendered. - Policy loans can be repaid at death.

- Money borrowed from the cash value is taxable. Money borrowed from the cash value is not taxable. Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.

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. - Certificate holders may convert coverage to an individual policy without evidence of insurability. - Individuals covered under the policy receive a certificate of insurance. - Amount of coverage is determined according to nondiscriminatory rules.

- Premiums are determined by the age, sex and occupation of each individual certificate holder. Premiums are determined by the age, sex and occupation of the entire group.

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? - Premiums are tax deductible as a business expense. - Premiums are not tax deductible as a business expense. - Premiums are taxable to the employee. - Premiums are tax deductible by the key employee.

- Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.

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? - HR 10 plan - Tax-sheltered account plan - 401(k) plan - Profit sharing plan

- Profit sharing plan A profit sharing plan is one where the employer will contribute monies into an employee's retirement plan when the company shows a profit. The others are all qualified plans, but company profit isn't an issue with them.

Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT? - SEPs allow the employer to make annual tax deductible contributions up to 25% of an employee's earned income. - SEPs are suitable for large companies. - Employer contributions are not included in the employee's gross income. - SEPs have a higher tax deductible contribution limit than an IRA.

- SEPs are suitable for large companies. An SEP is a benefit plan that is designed to be provided by a small employer for the benefit of the employees.

An IRA purchased by a small employer to cover employees is known as a - 401(k) plan. - 403(b) plan. - Defined contribution plan. - Simplified Employee Pension plan.

- Simplified Employee Pension plan. A Simplified Employee Pension (SEP) is an employer sponsored IRA. Contributions to the plan are not included in the employee's taxable income for the year, to the extent that they do not exceed the maximums allowed. Distributions from a SEP are taxable as ordinary income when received at retirement.

Which of the following applicants would NOT qualify for a Keogh Plan? - Someone who works for a self-employed individual - Someone who is over 25 years of age - Someone who works 400 hours per year - Someone who has been employed for more than 12 months

- Someone who works 400 hours per year A person must have worked at least 1,000 hours per year to be eligible for a Keogh Plan.

The advantage of qualified plans to employers is - Taxable contributions. - Tax-free earnings. - No lump-sum payments. - Tax-deductible contributions.

- Tax-deductible contributions. Qualified plans have these tax advantages: employer contributions are tax deductible and are not taxed as income to the employee; the earnings in the plan accumulate tax deferred; lump-sum distributions to employees are eligible for favorable tax treatment.

All of the following employees may use a 403(b) plan for their retirement EXCEPT - A part-time classroom aide. - A school bus driver. - The CEO of a private corporation. - The vice president of a charitable organization.

- The CEO of a private corporation. Not all public employees are eligible for 403(b) plans, or tax-sheltered annuities, only employees of public education (local, state, or federal), as well as employees of charitable organizations.

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? - There is a 10% early withdrawal penalty. - The amount of the distribution is reduced by the amount of a 20% withholding tax. - No taxes are due since the plan participant is over age 59 1/2. - The amount distributed is subject to ordinary income tax.

- The amount of the distribution is reduced by the amount of a 20% withholding tax. Distributions from 401(k) plans are taxable as ordinary income in the year of the distribution. However, if the distribution is rolled over to a Traditional IRA, taxes are deferred until the required minimum IRA distributions begin. Since this client actually took a distribution (instead of making a trustee-to-trustee roll over), the distribution is subject to 20% withholding tax.

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 as taxable income. - The benefit is received tax free. - The benefit is subject to the exclusionary rule. - IRS has no jurisdiction.

- The benefit is received tax free. Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.

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

- The employer can receive a current tax deduction for any contributions made to the plan. Employers do not receive a current tax deduction for any contributions made to a nonqualified plan. The plans are legal; however, they do not qualify for any favorable tax treatment under the IRS rules.

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? - The key employee is the owner and the employer is the beneficiary. - The key employee is the owner and beneficiary. - The employer is the owner and beneficiary. - The employer is the owner and the key employee is the beneficiary.

- The employer is the owner and beneficiary. With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen? - The insurer will pay the death benefit minus one month's premium. - The insurer will pay a reduced death benefit to the beneficiary. - The insurer will pay the full death benefit from the group policy to the beneficiary. - The insurer will pay nothing because the employee has terminated his group insurance and hasn't started the individual one.

- The insurer will pay the full death benefit from the group policy to the beneficiary. The employee usually has a period of 31 days after terminating from the group in order to exercise the conversion option. During this time, the employee is still covered under the original group policy.

All of the following are true of key person insurance EXCEPT - The key employee is the insured. - There is no limitation on the number of key employee plans in force at any one time. - The plan is funded by permanent insurance only. - The employer is the owner, payor and beneficiary of the policy.

- The plan is funded by permanent insurance only. Key Person coverage may be funded by any type of life insurance.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT - The policy is owned by the company. - The employer pays a bonus to a selected employee to fund the policy. - It is considered a nonqualified employee benefit. - Any type of insurance policy may be used.

- The policy is owned by the company. The policy is owned by the employee.

All of the following are characteristics of a group life insurance plan EXCEPT - There is a requirement to prove insurability on the part of the participants. - The participants receive a Certificate of Insurance as their proof of insurance. - A minimum number of participants is required in order to underwrite the plan. - The cost of the plan is determined by the average age of the group. .

- There is a requirement to prove insurability on the part of the participants. There is no individual underwriting for group life insurance.

How are contributions to a tax-sheltered annuity treated with regards to taxation? - They are taxed as income for the employee, but are tax free upon withdrawal. - They are not included as income for the employee, but are taxable upon distribution. - They are never taxed. - They are taxed as income for the employee.

- They are not included as income for the employee, but are taxable upon distribution. Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal.

Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings? - Taxes must be paid in full. - 75% of employee's contributions are taxed. - Employer's matching contribution can be 50% of employee's salary. - They are tax deferred until withdrawn.

- They are tax deferred until withdrawn. Taxation is deferred on both contributions and earnings until funds are withdrawn.

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

- They are tax free to terminally ill insured. When accelerated benefits are paid under a life insurance policy, they are received tax free by terminally ill insured, and tax free up to a limit for chronically ill insured.

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 no history of claims - Those who have been insured under the plan for at least 5 years - Those who have dependents - Those who have worked in the company for at least 3 years

- Those who have been insured under the plan for at least 5 years If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage.

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE? - Accumulations are tax deferred. - Withdrawals are not taxable. - Distributions before age 59 1/2 incur a 10% penalty on policy gains.- Policy loans are taxable distributions.

- Withdrawals are not taxable. Any distributions from MECs are taxable, including withdrawals and policy loans. All of the other statements are true.

What is the number of credits required for fully insured status for Social Security disability benefits? - 40 - 30 - 4 - 10

40 The term "fully insured" refers to someone who has earned 40 quarters of coverage (10 years of work times 4 maximum annual credits).

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 of life insurance - Term insurance only - Universal life insurance only - Permanent insurance only

Any form of life insurance Any form of Life insurance may be used to fund a buy-sell agreement.

If a retirement plan or annuity is "qualified," this means - It is approved by the IRS. - It accepts after-tax contributions. - It is noncancellable. - It has a penalty for early withdrawal.

Approved by IRS A qualified retirement plan is approved by the IRS, which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth.

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 - Group rate. - Attained age. - Experience Rating. - Insurer's scheduled rate.

Attained age If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability. The insurer will determine what type(s) of policy an employee may convert to, but it must be issued at a standard rate, based on the individual's attained age.

All of the following are requirements of eligibility for Social Security disability income benefits EXCEPT - Being age 65. - Fully insured status. - Waiting period of 5 months. - Inability to perform any gainful work.

Being age 65 The term fully insured refers to someone who has earned 40 quarters of coverage (the equivalent of 10 years of work), and is therefore entitled to receive Social Security retirement, Medicare, and survivor benefits. The waiting, or elimination period for Social Security disability benefits is 5 months.

All of the following are personal uses of life insurance EXCEPT - Estate creation. - Cash accumulation. - Buy-sell agreement. - Survivor protection.

Buy-sell agreement Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. A buy-sell agreement is for business uses of life insurance.

Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount? - Buy-sell agreement - Key person agreement - Split dollar agreement - Profit and loss agreement

Buy-sell agreement A Buy-Sell agreement (also referred to as a business continuation agreement) is a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.

In group life policies, a certificate of insurance is given to - The policyholder to keep on file. - The insurance producer. - Each insured person. - The group sponsor.

Each insured person

For a retirement plan to be qualified, it must be designed for the benefit of - IRS. - Employees. - Employer. - Key employee.

Employees Qualified plans are designed for the exclusive benefit of the employees and their beneficiaries.

When an employee terminates coverage under a group insurance policy, coverage continues in force - Until the employee can obtain coverage under a new group plan. - For 31 days. - For 60 days. - Until the employee notifies the group insurance provider that coverage conversion policy is issued.

For 31 days

If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is - Partially insured. - Permanently insured. - Correctly insured. - Fully insured.

Fully insured

In life insurance policies, cash value increases - Are only taxed when the owner reaches age 65. - Are taxed annually. - Grow tax deferred. - Are income taxable immediately.

Grow tax deferred Generally life insurance cash values are only income taxed if the policy is surrendered (totally or partially) and the cash value exceeds the premiums paid.

Two attorneys 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 - HR-10 (Keogh Plan). - Section 457 Deferred Compensation Plan. - 403(b) plan. - 401(k) plan.

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

Which of the following statements is TRUE concerning whole life insurance? - Premiums are tax deductible. - Dividend interest is not taxable. - Policy loans are tax deductible. - Lump-sum death benefits are not taxable.

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

Traditional IRA contributions are tax deductible based on which of the following? - Owner's income - How long the plan has been in force - Owner's age - IRA limit

Owner's income Traditional IRA contributions are tax deductible, but may be limited if the owner's income exceeds a certain level.

Who may contribute to a Keogh (HR-10) plan? - Partner with at least 5% ownership - Self-employed plumber - Manager of a store - Corporate executive

Self-employed plumber

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a - Nonforfeiture option. - Nontaxable exchange. - Settlement option. - Rollover.

Settlement option A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.

The premiums paid by the employer in a business life insurance policy are - Never taxable to the employee. - Always taxable to the employee. - Tax deductible by the employee. - Tax deductible by the employer.

Tax deductible by the employer The premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee's benefit, are tax deductible to the employer as a business expense.

All of the following would be different between qualified and nonqualified retirement plans EXCEPT - Taxation of contributions - Taxation on accumulation - Taxation of withdrawals - IRS approval requirements

Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? - The insured may choose to convert to term or permanent individual coverage. - The insured would not need to prove insurability for a conversion policy. - The premium for individual coverage will be based upon the insured's attained age. - The insured may convert coverage to an individual policy within 31 days.

The insured may choose to convert to term or perm individual coverage. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance.

All of the following benefits are available under Social Security EXCEPT - Disability benefits. - Old-age and retirement benefits. - Welfare benefits. - Death benefits.

Welfare benefits Social Security is an entitlement program, not a welfare program.