HS323 - LI Review & Quiz Sets

What are the 2 types of non-qualified deferred compensation plans? (L9)

"In Addition" Plans (aka Salary continuation plans) & "Elective Plans" (aka salary reduction plans)

A father gave his son a life insurance policy on the father's life valued at $18,000 for federal gift tax purposes. At the father's death, the son receives the policy death benefit of $250,000. What amount is subject to income tax for the son? (R6)

$0

True or False: Most irrevocable trusts are unfunded and contain only life insurance policies.

True

True or False: Indexed universal life is a hybrid of regular universal life and variable universal life. (Q3)

True

Section ________ of the Internal Revenue Code governs the taxation of living proceeds from life insurance policies. (L2)

72

For VLs and VULs any reduction in death benefits attributable to the nonpayment of premiums will not trigger a recomputation of the seven-pay test if the benefits are reinstated within __________ after being reduced. (L30)

90 days

LI in a qualified retirement plan, death benefits (are / are not) included in the decedent's estate for federal estate tax purposes. (L9)

are

What date triggers the new requirements for employer-owned life insurance contracts? (L6)

August 17th, 2006

Why does the "Transfer of Value" Rule exist? (L6)

Congress wanted to make sure that people weren't selling life insurance policies to people who had no insurable interest. Aka people who own the policy needs to rather have the insured alive vs getting insurance proceeds

Variable Annuities are based on what kind of investments? (L4)

Equity Investments

The principal requirement involved in implementing a pension maximization strategy is compliance with the requirements of what law for spousal benefits? (L9)

Retirement Equity Act of 1984 (REA) - The law mandates that a Colvin's (the spouse) interest in Wendy's (the participant) qualified retirement benefits must be protected and specifies that certain benefits must be paid to Colvin if Wendy predeceases Colvin either before or after retirement.

Annuities are first and foremost what kind of tools?

Risk Management tools

In a variable annuity who assumes the entire investment risk? (L4)

The contract owner

How does Pension Maximization work? (L9)

Wendy who is retiring, elects for the Single Life Annuity payout for her pension because it's a lareger payout than Joint & Survivor Annuity. Wendy then takes the annuity payout and uses it to pay for premiums on a life insurance policy on Wendy's life to benefit Colvin when she dies

How does a DI Buy-sell agreement work? (L4)

When a shareholder/employee is disabled and they won't ever be able to return to work, the coverage amount that will buy the disabled shareholder/ employee's interest in the business from the employee. That way the employee can recover and get the value of their interest while allowing the business to hire a replacement person.

DI premiums paid by an employer for disability income policies provided to employees ( are / are not )deductible to the employer in the year paid. (L4)

are deductible

Whole life cash values ( are / are not ) subject to market risk. (L2)

are not subject to market risk

Viatical settlement payouts to an insured who is terminally ill ( are / are not ) typically received income tax free. (L7)

are typically received income tax free only if they are terminally ill. Otherwise proceeds are taxable as ordinary and capital gain rates.

Employer contributions to a qualified plan, including amounts used to purchase life insurance, (are / are not) generally deductible. The amount of life insurance purchased must fall within ___________ limits.

are; incidental

For most income tax purposes, there is ( little significant / no significant / significant ) impact when assets are transferred to a revocable living trust. (L8)

no significant

In a 1035 Exchange if there is a failure to carry over policy loans, the extinguished loan can result in taxable _________________ to the extent of ________________ in the policy.

boot ; gain

As a general rule, anytime a life insurance policy is sold to an unrelated third-party investor, the proceeds to the seller are taxed at _______________________ rates, unless the insured is terminally ill. (L7)

both ordinary and capital gain tax rates

Sale of a LI policy produces ordinary and/or capital gains taxes? (L6)

both ordinary income and capital gains taxes

For Group Life, employers ( can / cannot ) deduct the premiums the employer paid. (L7)

can

The principal objective of NLUL policies is to provide policyowners with a guaranteed __________________ for the lifetime of the insured for the lowest possible guaranteed ___________________________.

death benefit; premium level

A current income tax deduction is allowed for the transfer of a cash value life insurance policy to a qualified charity. The client will save an amount equal to the ___________________________. (L7)

deductible gift value x client's effective tax bracket

Gifts of life insurance to a charity is more valuable to the donor if given ( directly / indirectly) (L7)

directly

If you're directly gifting a LI policy to charity, you're able to deduct up to _____% of your AGI. If you're indirectly gifting a LI policy to charity, you're able to deduct up to _____% of your AGI.

directly: 50% ; indirectly 30%

The value of future Social Security benefits (does/ does not) need to be converted to a present value in order to determine their effect on income replacement. (L1)

does

A MEC is a life insurance contract that ( does / does not ) meet the requirements of Code section 7702 and: II. was entered into on or after June 20, 1988, and fails to meet the seven-pay test II. is received in exchange for a MEC

does ; Both I & II

For Group life an employee ( does / does not ) have to report any income with respect to the first $_____________ of life insurance coverage provided by the group plan. But the employee does have to report and pay income tax on the ________________________of excess coverage. (L7)

does not ; $50K ; economic benefit (insurance cost)

"Almost no employee benefit plan is as (easy or as inexpensive/ hard or as expensive) as a Section 162 plan to implement and maintain." (L9)

easy or as inexpensive

The unique advantage of IUL is that it allows policyowners to earn potentially higher returns tied to the performance of ___________________________while retaining the safety afforded by the insurer's guaranteed minimum interest crediting rate. (L3)

equity indexes

What area of financial planning did American Taxpayer Relief Act (ATRA) affect the most? (L10)

estate planning

For Annuities, the ____________________________ determines the amount of each period's payment that will be considered ( taxable / nontaxable).

exclusion ratio ; nontaxable

For the nonforfeiture extended term option, the face amount ( increases / decreases / stays the same ) and the duration of coverage ( does / does not ) change. (L5)

face amount stays the same ; does change

If the provisions of a life insurance trust required the trustee to pay to the insured's estate any cash needed to pay debts, expenses, and taxes, such an instruction would result in ______________________inclusion of all amounts that could be so expended (as amounts receivable by the executor) (L8)

federal estate tax

A contract fails to meet the seven-pay test if after payment of 7 level annual premiums, the accumulated amount paid under the contract at any time during the ( first / last ) 7 contract years exceeds the sum of the net level premiums that would have been paid on or before such time if the contract provided for __________________ future benefits. (L7)

first 7 contract years; paid-up

GSTT is imposed as a ( flat / accrued ) tax at the ( highest / lowest ) federal estate tax level (L6)

flat tax ; highest federal estate tax level

If a policy is classified as a MEC, distributions under the contract are taxed under the _______________________ rule rather than the cost recovery rule. In addition, to the extent taxable, these distributions are subject to a 10 percent penalty if they occur before the policyowner reaches age 59½, dies, or becomes disabled. (L3)

interest-first rule

In a split-dollar arrangement if the company pays the entire premium, the economic benefit measured ( is / is not ) taxable income to the policyowner. (L4)

is

A current income tax deduction ( is / is not ) allowed for the transfer of a cash value life insurance policy to a qualified charity. (L7)

is allowed

A gift tax charitable deduction ( is / is not ) allowed without limit for an outright transfer of a new or existing LI contract. Any deduction will be denied if the transfer is less than an entire _______________________ in the policy (L7).

is allowed without limit ; interest

Employer provided DI policies that pay out a benefit, that benefit ( is / is not ) taxable to the employee. (L4)

is taxable to the employee

For estate and gift tax purposes the value of a life insurance policy is __________________________. (L6)

it's Fair Market Value (FMV).

With Business DOEs one should buy overhead expense insurance for ( their total monthly overhead / just enough to cover the business while disabled). (L4)

just enough to cover the business while disabled

For Group Life to meet benefit nondiscrimination rules, a plan must provide all participants with benefits at least as great as those provided to _________________________. It is permissible, under this rule, to base benefits on a uniform percentage of ________________________.

key employees ; compensation

A viatical settlement are usually for insureds who have a life expectancy of ( less than 2 years / 15 years or less ) and ( are / are not ) terminally ill or have a life threatening disease. (L7)

less than 2 years ; are terminally ill

When a LI policy is sold on the secondary market (i.e the life settlement market) it is usually sold for (more/ less) than the cash surrender value. It's also usually limited to policies on (younger / older) insureds. (L6)

more ; older

Mutual insurance companies are owned soley by ( shareholders / policyowners ) & Stock companies are soley owned by ( shareholders / policyowners ). (L5)

mutual owned by policyowners ; stock companies owned by shareholders

Gain on the surrender of a life insurance policy is taxed at _____________ tax rates. (L6)

ordinary

Life insurance premiums in a qualified plan are paid with (pre-tax/ after-tax) dollars, and the benefit is (non-taxable/ taxable) income

pre-tax; taxable

In a pure normal split-dollar arrangement, the economic benefit of a single life policy generally is measured by the cost of the ______________________ element of the policy (the difference between the face amount of coverage and the cash surrender value) (L4)

pure insurance

ATRA (lowered/raised) income tax rates and (reduced/increased) certain deductions for high-income taxpayers. (L10)

raised income taxes ; reduced certain deductions

For contracts insuring a single person, if death benefits are ( increased / reduced ) within the seven-year testing period, there is a look-back requirement. The seven-pay test must be reapplied as if the contract originally had been issued at that amt. (L7)

reduced

Morbidity Definition (L1)

refers to statistics pertaining health

Mortality Definition (L1)

refers to the number of eaths per 1,000 in a given time or community

The gift tax cost of a life policy transfer, when the gift is life insurance, is relatively ( high / low ) since essentially only the (what amt) ______________________ is subject to gift tax. (L6)

replacement value

All of the following may cause a trust to be treated as a "grantor trust" EXCEPT: (L8) A) retention of ability to fund the trust for ongoing premium payments B) retention of certain administrative powers by the donor or spouse C) retention of a reversionary interest by the donor or spouse. D) retention of the right to control the beneficial enjoyment of trust assets.

retention of ability to fund the trust for ongoing premium payments.

At the transition to the payout phase (annuitization) of a Variable Annuity, the insurer credits the value of the contract owner's total accumulation units to a ____________________ fund. The number of accumulation units acquired will purchase __________________________ . (L4)

retirement fund ; retirement income units

Which of the following is a significant requirement of the Retirement Equity Act of 1984 (REA) (R9)

spousal benefits must be protected

In relation to ILIT, if LI proceeds are includable in the insured's gross estate, this will generate federal estate taxes if the insured doesn't have a(n) _______________ and/or doesn't want to leave the insurance proceeds in a manner that qualifies for the ______________________? (L8)

surviving spouse ; estate tax marital deduction

If the need lasts for 10 - 15 years buy ______________________(L5)

term and/or whole life

AIRs (Additional Insured Riders) for Joint Life policies are usually, but not exclusively, ______________________, depending on the facts, circumstances, and objectives of the application. (L4)

term riders

In a Section 162 (aka Executive Bonus) plan, who is the owner and payer of the policy? (L9)

the Employee is owner and payer, BUT the employer pays the premium and charges the employee a 'bonus' for the premium amt.

What is the Unified Credit Amount? (L8)

the amt an individual can give away during their lifetime or upon their death

For Irrevocable trusts, what are the main ways federal estate tax is avoided? (L8)

the client giving up direct control of the policy and/or at the client and spouses' death

A wife owns a policy on her husband's life. She names her children as beneficiaries. When her husband dies, she is deemed to have made a gift of what amount to the children? (R6)

the death benefit of the policy

Assuming the client is not terminally ill, when a LI policy is sold to an unrelated third party investor, the total amt of taxable income for the seller is __________________________. (L7)

the difference between the sale proceeds and the policyholder's adjusted basis in the policy

What are the employee tax implications of Group Life? (L7) Premiums: Limits?:

the employee does not have to report any income with respect to the first $50K of life insurance received from a group plan. Anything received above the $50K the employee must pay income tax on the economic benefit (aka term insurance cost) of the excess coverage

What happens when a client selects "reduced paid-up insurance" as their option for nonforfeiture? (L5)

the insurer takes the cash value of the policy and uses that money to pay up the contract for the life of the insured

What's the main driving difference between viatical and life settlements?

the life expectancy of the insured

What does it mean when an irrevocable trust is "funded"? (L8)

the placement of income-producing assets were put into the trust. Usually these assetes produce sufficient income to pay the insurance premiums

LIfe insurance can be purchased through a qualified pension or profit sharing plan. The insurance is bought and owned by _____________, using ________________________ to the plan as a source of funds. (L9)

the plan; employer contributions

If an owner of an insurance policy on the life of another person dies, what is includible in the deceased owner's estate? Aka If you own the life policy on Connie and you die, what is includable in your estate? (R6)

the replacement cost of the life insurance policy

The early withdrawl penalty on annuities is a 10% penalty tax on what amount? (L4)

the taxable amount withdrawn

For Survivorship life, say the non-owner spouse passes. Then at the owner-insured's later death, the proceeds will be includable in the owner-insured's gross estate unless ___________________. (L4)

they have transferred the policy more than three years before their death and have retained no incidents of ownership

A gift of a life policy to a charity will qualify for the charitable deduction and therefore no gift tax will be payable regardless of the size of the policy or its value UNLESS what happens? (L6)

unless the giver retains any form of ownership of the given policy

What does the tax treatment of a split-dollar arrangement depend on?

when the arrangement is first entered into - the date to remember is after September 17th 2003

Buy some type of ( term / whole life ) coverage if the need will probably last for 15 yrs or longer. (L5)

whole life

Buy some type of (term / whole life ) coverage if the policy is purchased to solve a buy-sell need. (L5)

whole life

For most life policies, assuming the insured didn't have any incidents of ownership and did not transfer ownership of the policy within the last 3 years, the policy ( will / will not ) be included in the insured's gross estate (L4)

will not

For ILIT, each time a client contributes to a trust, aka enabling the trustee to pay life insurance premiums, the client ( would / would not ) have to use up more of her unified credit to avoid gift taxes or actually pay gift taxes. (L8)

would

A transfer to a trust for a nonskip person ( would / would not ) be subject to the GST tax (L6)

would not

If the specified date for annuity payouts to begin is within one _____________ of the date the contract is established, the annuity is called an immediate annuity.

year

What is Form 1099R do? (L7)

(Total Distributions From Profit-Sharing, Retirement Plans, Individual Retirement Arrangements, Insurance Contracts, etc.) in a 1035 exchange this is sent by the insurer to the IRS showing basis and distribution as well as the taxable amount for each policy surrendered by the insurer

In a trusteed plan (Think Joint Life Cross Purchase Buy-sell agreements) the company sets up a trust for the benefit of the (who) ______________________. Then (who)_____________________ would apply for and own the JL policying insuring all the business owners. Each business owner would have a specific and limited interest in the trust equal to _______________________________________. The shareholders would have ( all / some/ no ) other rights to the insurance policy, cash values, or the trust. (L4)

- for benefit of shareholders - the trust would apply and own JL - equal to their ownership interest minus the interest of the decedent - no other rights

What 4 typical reasons do employers use a Section 162 Plan?

1) As an alternative for split dollar coverage. 2) When the business is in a relatively high income tax bracket and wants to provide fringe benefits to selected key employees. 3) When an employer would like to carve out large amounts of coverage under the group term life insurance plan and provide individual coverage to specified key employees. 4) When an employer seeks a replacement for, or a supplement to, a qualified pension or profit-sharing plan.

What are the 3 types of split-dollar plans and their subsets? (L9)

1) Classic Split - Dollar 2) Collateral Assignment Split Dollar ( Equity Split Dollar & non-equity split dollar) 3) Endorsement Split- Dollar

What are the two ways UL & VUL are different? (L3)

1) Policyowner chooses how premiums are invested for VUL but not UL 2) UL has Guarnateed minimum interest rate on CV but VUL doesn't

As is the case with any other gift tax analysis, when life insurance is the subject of a transfer, the planner must ask what four questions?

1) Was there a gift, a gratuitous transfer for less than adequate and full consideration? 2) Was the gift completed? 3) What is the value of the gift? 4) Is there an exclusion (such as the annual exclusion) or a deduction (such as the marital or charitable deduction) that can reduce or eliminate the taxable gift or a credit (such as the lifetime exemption) that can reduce or eliminate the tax on the gift? (aka is there something available that can reduce or eliminate the taxable portion of the gift?)

What are the 5 safe-harbor exceptions that may shelter a transfer from the transfer for value rule penalty (even if there's a transfer for valuable consideration)? (L6)

1) the transferor's basis (in whole or in part) exception; 2) the transfer to the insured exception; 3) the transfer to a partner of the insured exception; 4) the transfer to a partnership in which the insured is a partner exception; and 5) the transfer to a corporation in which the insured is a shareholder or officer exception.

Short-term Disability Benefit payments usually commence anywhere from ________days after employees suffer a condition that leaves them unable to work and after all sick/PTO days have been used. (L4)

1- 14 days

IRC Sec 22 offers an income tax credit to qualified individuals who were totally disabled when they retired. The credit amount is what % of the taxpayers Sec 22 amt? (L4)

15%

The Internal Revenue Code provides a tax credit of what percent of an individual's "Section 22 amount?"

15%

The Incidental Test with LI in Qualified retirement plans is the fact that the IRS considers any non-retirement benefit in a qualified plan to be 'incidental' as long as the cost of that benefit is less than ______% of the total cost of that plan. (L9)

25%

All of the following are correct regarding the valuing of life insurance policies EXCEPT: 1) The IRS has not yet given guidance over whether secondary market prices can be considered in life insurance valuation 2) Younger, healthier insured's will likely need to look to the insurance carrier as the only market for their policy 3) There have been organized markets for life policies for decades 4) There can be a great deal of uncertainty in valuing life insurance

3

If the client makes a direct cash gift to the charity, the gift will be deductible up to _____% & of their ( total gift amount / adjusted gross income). (L7)

50% of their AGI

Buy some t ype of whole life coverage if the policy will probably be continued up to or beyond age ____________ (L5)

55

Using the Interest-Crediting formula, if a policy earns 10% in any given year and has a 60% participation rate what interest rate percentage will the interest crediting formula use to credit the policy's cash values?

6% (10% x 60%)

One of the disadvantages of a non-qualified deferred compensation plan is that there's a lot of uncertainty. What kind of trust would you use as a solution to this lack of security? (L9)

A Rabbi Trust

If someone is looking for a way to meet both charitable objectives while not jepordizing their family's personal financial security needs they are looking for what kind of strategy? (L7)

A Wealth Replacement Strategy

If an irrevocable trust (ILIT) that has income, uses that income to pay premiums on a policy insuring the client's life of their spouse, the trust becomes what kind of trust? (L8)

A grantor trust because the income of the trust is going to the client

Why did Congess impose a Generation- Skipping Transfer tax? (L6)

A trust might last for several generations and, absent any GST tax, the IRS would receive no tax when the children died. This is the reason Congress imposed a generation-skipping transfer tax—so that even if a trust or a transfer skips an outright distribution (or vesting of rights) to the next generation down, a tax is nevertheless imposed on that skip at the time of the skip.

To which of the following distributions from a MEC would a 10 percent penalty tax apply? (R7) A) A distribution made to an owner at age 55 B) A distribution made to an owner at age 60 C) A distribution made to an owner who has become disabled D) A distribution that is part of a series of substantially equal periodic payments

A) A distribution made to an owner at age 55

Which is false when it comes to using LI in buy-sell agreements? (L9) A) At the death of one owner the value of the survivor's stock decreases significantly B) It's recommended that the buy-sell be fully funded since inception C) To help meet future needs it's strongly suggested that LI be used to fund a buy-sell be purchased using dividends to buy paid-up additions and/or 1yr term insurance D) If UL is used, then Option B is recommended because it increases death benefit

A) At the death of one owner the value of the survivor's stock decreases significantly

Which one of the following is true of a corporate-owned joint life policy? (R4) A) Corporate AMT may be a consideration B) The death benefit cannot be used to pay any AMT tax C) A corporation may ignore the net death proceeds in its tax base D) Net death proceeds will not be a corporate AMT preference item

A) Corporate AMT may be a consideration

How are distributions from a Modified Endowment Contract taxed? (R7) A) Distributions are treated as coming first from taxable policy income B) Distributions are treated as coming first from the investment in the contract C) Distributions are not taxed if directly transferred to an IRA D) Distributions are entirely taxable at the highest marginal tax rate

A) Distributions are treated as coming first from taxable policy income.

Which of the following is a potential problem with using viatical or life settlements? A) Eventual death benefits are reduced or eliminated for the previous beneficiaries B) Benefits used for qualified plan expenses will be subject to income taxation C) Medicare assistance will automatically be terminated D) Mortality charges and premiums will be frozen

A) Eventual death benefits are reduced or eliminated for the previous beneficiaries

All of the following are tax implication of a pension maximization strategy's feasibility EXCEPT: (R9) A) Life Insurance Premiums are paid using pre-tax dollars B) Qualified plan distributions are generally subject to income tax C) Life insurance death proceeds are generally income-tax free D) Less death benefit is required to match the qualified plan's before - tax benefit payments

A) Life Insurance Premiums are paid using pre-tax dollars

Which of the following is a primary advantage of using a survivorship life policy rather than two single life policies? A) Survivorship life is more cost-effective B) Survivorship life provides needed cash when either insured dies C) Estate liabilities will always be greater when the first insured dies D) Single life policies will always be included in the deceased's estate

A) Survivorship life is more cost-effective

Which one of the following essentially provides a death benefit equal to the policy's initial face amount? (R3) A) UL Option A or I B) UL Opiton B or II C) UL Varaible Death Benefit D) UL Cost of living Rider

A) UL Option A or I

Which of the following are reasons to use a Section 162 plan? (R9): A) as a supplement or replacement for a qualified retirement plan B) as a funding strategy for a buy-sell agreement C) when the business is in a low income tax bracket D) as an alternative to an irrevocable life insurance trust

A) as a supplement or replacement for a qualified retirement plan

All of the following are tax implications of DBO plans EXCEPT (R9): A) employee pays income tax on premiums paid by employer B) employer paid premiums are not tax deductible C) benefits paid by the employer to the beneficiary are taxed as ordinary income D) benefits paid by the employer to the beneficiary may be excludable from the employee's estate

A) employee pays income tax on premiums paid by employer

Which one of the following is a key advantage of DBO plans over most qualified retirement plans? (R9): A) employer can determine the benefit for each highly compensated employee B) employer wants to provide initial funding for defined benefit plan C) employee is taxed at lower long-term capital gains tax rates on premiums D) employee is able to select who the beneficiary is

A) employer can determine the benefit for each highly compensated employee

Which of the following is a disadvantage to DBO plans? (R9): A) entire payment is income tax free to the employee B) premiums on the life insurance must be paid with after-tax dollars C) all DBO plans must comply with ERISA requlations D) employer can take a deduction immediately, but employee must wait until benefits are paid

A) entire payment is income tax free to the employe

All of the following factors will affect the amount of a viatical or life settlement received EXCEPT (R7): A) owner's life expectancy B) insured's life expectancy C) amount of the premiums paid D) size of the policy

A) owner's life expectancy

All of the following are potential advantages of a split-dollar arrangement EXCEPT (R9): A) there is essentially no cost to either party in the arrangement B) the employer's outlay is usually fully secured C) there are virtually no ERISA reporting requirements D) the employer can decide who will be covered and under what terms

A) there is essentially no cost to either party in the arrangement

ERISA reuqirese that an employee benefit plan (ex: group life) must meet which of the following: (L7) I. Plan must be estabilshed and maintained in writing II. plan docs must provide for one or more named fiduciaries who administer the plan III. must specify the basis on which payments are to be made to and from the plan IV. the plan must provide a claims review procedure

All of the above

How are Variable Annuities and Mutual Funds Different? (L4) I. VAs come with contractual guarantees II. VA Payout amounts are partially taxable at ordinary income rates whether the gain is due to ordinary investment income or capital appreciation III. VAs have mortality and expense charges and surrender charges IV. VAs have a 10% early withdrawal penalty on distributions before age 59 1/2

All of the above

In what situation would somoene enter into a life settlement to a third party? (L7) I. The policy owner or insured no longer needs the life insurance coverage II. The policy owner can no longer afford the premiums III. The policy owner desires to receive a lump-sum payment of cash IV. Other options to eliminate the coverage, eliminate the premium obligations, or obtain liquidity are not available or are not as attractive.

All of the above

The amount that insurers credit to cash values each year depends on which of the following factors? (L3) I. The expenses insurers charge against the policy II. The mortality charges insurers assess against the policy III. The net investment yield earned by the insurers on their portfolio of investments IV. The method insurers use to allocate interest to various blocks of policies

All of the above

Which is true of the NLUL? (L3) I. NLUL is low cost & level premium II. Fixed Death benefit III. Serves like extended-period term policies IV. There is regulatory uncertainty and insurer insolvency risk

All of the above

Which of the following are advantages of IUL: I. The safety of no negative returns II. Insurer absorbs the investment risk III. Life-long insurance without paying fo a lifetime IV. Guaranteed minimum interest rate

All of the above

Which of the following are considered parties to a life insurance contract? (L5): I. The insurer II. The insured III. The applicant - policyowner IV. The beneficiary

All of the above

Which of the following are direct strategies used to make charities benefit from life insurance? (L7) I. Disposition by will of a policy on another's life to a charity II. Contributing cash to a charity, who then uses that cash to purchase a LI policy on the donor III. Naming the charity revocable or irrevocable beneficiary of one or more life insurance contracts IV. Donating an asset to generate an income tax deduction. Then giving those savings to the client's beneficiary so the beneficiary can buy LI on the client

All of the above

Which of the following are disadvantages of Group Life: (L7) I. If no new employees enter the plan the employer's out-of-pocket cost can skyrocket II. Group term LI plan cannot cover shareholders who aren't employees III. Employees have no guarantee that the employer will continue group coverage IV. The Table 1 cost increases significantly as insured individuals grow older

All of the above

Which of the following are disadvantages of IUL? (L3) I. Potential bond-like returns over time II. The ability of insurers to change elements of their interest crediting formulas III. Illustrations are unreliable IV. Policy lapse can trigger adverse tax consequences.

All of the above

Which of the following are disavantages of the joint life policy? (L4) I. Unless the JL policy is coupled with a guaranteed insurability rider, all coverage ceases upon the first death II. The cost of a JL policy is greater than a single life policy with the same face amount because the insurer must pay the benefit at the first death of two insureds III. Failure to adhere to specific guidelines can have adverse tax consequences

All of the above

Which of the following are indirect strategies used to make charities benefit from life insurance? (L7) I. Name the charity as the annual recipient of any dividends received from LI II. Dividends from an existing policy can be used to p urchase a new policy III. Group Term LI can be used to help charities IV. Name the charity as the beneficiary of a currently owned LI policy

All of the above

Which of the following are interest-crediting methods used with universal life policies? (L3) I. Blending II. Portfolio III. Discretionary IV. New Money

All of the above

Which of the following are true about annuities (L4): I. Annuities allow a client to invest in the market while moderating risk II. Because the interest on an annuity is tax-deferred, an annuity paying the same interest rate as a taxable investment will result in a higher effective yield III. Adjusted Gross Income (AGI) may be reduced in years where the annuity is held with no withdrawals IV. Annuitants may recognize less taxable income during the payout phase due to the partial recovery of basis associated with each payment

All of the above

Which of the following conditions would make a charity a "qualified charity"? (L7) I. It's operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to prevent cruelty to children or animals II. No part of the organization's earnings can be used to benefit any private shareholder or similar individual III. It participates in fostering national or international amateur sports competition IV. It cannot attempt to influence legislation or participate in any political campaign on behalf of any candidate seeking public office

All of the above

Which of the following is true about Joint Life (First to die) insurance? (L4) I. Major ownership concerns arise when three different parties are involved as separate insured, owner, and beneficiary II. The one potential tax problem with any corporate-owned life insurance is the Alternative Minimum Tax (AMT) III. JL is uniquely suited to fund stock redemption buy-sell agreements in small, closely-held businesses IV. Cross-purchase buy-sell plans avoid the corporate AMT and provide survivors with an increased basis

All of the above

Which of the following is/are the main estate tax-related concerns when it comes to revocable trusts: (L8) I. General Estate tax inclusion issues II. Third party owner issues III. Providing Estate liquidity

All of the above

Which of these could be used to decribe Universal Life: (L3) I. Transparent/Unbundled II. Has a guaranteed minimum interest rate III. Option A, B, & C Death Benefit IV. Popular in the family market

All of the above

Which role should a trustee play when it comes to purchasing life insurance in an irrevocable trust? (L8) I. Initiate the purchase II. Owner since the inception and retain all incidents of ownership III. Premium Payor IV. Beneficiary

All of the above

Which of the following are true regarding the Interpolated Terminal Reserve (ITR)? (L6) I) Annual Renewable Term does not have a reserve value II) The terminal reserve is generally less than the cash value in the early years of the contract III) It has been relatively easy to apply the IRS' ITR guidance to the numerous product types that have recently been introduced IV) With Whole Life policies, the reserve value is not known in advance

Annual Renewable Term does not have a reserve value

Under most variable annuity contracts, the investment portfolio must earn a(n) __________________________ for benefit payments to remain level. (L4)

Assumed Investment Rate (AIR)

Which of the following life insurance contracts will be classified as a Modified Endowment Contract? (R7) A)A single-premium paid-up contract entered into on June 20, 1988 with no material changes B) A single-premium paid-up contract entered into on June 22, 1988 with no material changes C) A six-level-premium paid-up contract entered into on June 20, 1988 with no material changes D) An eight-level-premium paid-up contract entered into on June 22, 1988 with no material changes

B) A single-premium paid-up contract entered into on June 22, 1988 with no material changes

Which one of the following can be used for businesses that are considering providing post- retirement medical benefits for their employees? (L10) A) An HSA plan B) Secion 419 Plan C) A Section 401(k) plan D) A Medicare supplement plan

B) Section 419 Plan

Which of the following may also be insured by a participant's qualified plan? (R9): A) A close relative B) Spouse C) A charitable trust D) A business creditor

B) Spouse

What are the consequences of paying off a policy loan on a contract surrendered in an attempted Section 1035 exchange? (R7) A) There are no consequences to paying off the policy loan B) The amount of the policy loan is "boot" and a portion of any gain is taxable C) The basis on the new contract is not changed by the amount of the policy loan D) The amount of the policy loan is "boot" and none of the gain is taxable

B) The amount of the policy loan is "boot" and a portion of any gain is taxable

All of the following are reasons why an employer might use life insurance in a qualified plan EXCEPT: A) To provide extremely secure funding with guaranteed costs and benefits B) To fund an executive nonqualified deferred compensation arrangement C) When the current qualified plan is overfunded or close to the limit D) to provide for family protection or estate liquidity

B) To fund an executive nonqualified deferred compensation arrangement

When transfering a life policy to qualify for the gift tax marital deduction, the assignment to the insured's spouse must be one of the following EXCEPT: (L6) A) outright B) considerable C) consist of the transfer of a life interest coupled with a general power of appointment vested in the spouse D) meet qualified terminable interest property (QTIP) rules.

B) considerable

Which of the following is one of the basic tax treatment arrangements of split dollar plans? (R9): A) equity notice 2002-2008 treatment B) economic benefit treatment C) equity treatment D) reverse equity treatment

B) economic benefit treatment

All of the following are requirements for making a charitable gift of a policy EXCEPT. (R7) A) gift generally must constitute donor's entire interest B) gift may be made up to three years following the tax year for which a deduction is being claimed C) must meet the definition of a qualified charity D) client must receive a benefit from the charity that is less than the gift's value

B) gift may be made up to three years following the tax year for which a deduction is being claimed

Which of the following tax implications of a Section 162 plan is true? (R9) A) premium/bonus payments to the employee are not subject to gift taxes B) the entire bonus/premium is reportable as income by the insured C) the employer's basis in the policy is equal to the gross premiums paid D) death benefit proceeds are subject to employer income tax

B) the entire bonus/premium is reportable as income by the insured

All of the following are advantages to using life insurance in charitable giving EXCEPT: (R7) A) the gift can be made with no actual expense to the donor B) value of gift is fixed C) contractual nature of life insurance makes the gift hard to contest by heirs D) confidentiality

B) value of gift is fixed

All of the following ERISA and Internal Revenue Code (IRC) requirements must be met for group life insurance EXCEPT: (R7) A) Benefits must be provided under a policy owned by the employee. B) Benefits must be provided to a group of employees as compensation for services C) The plan must provide a death benefit that meets the definition of a "life insurance contract" D) The plan must be in writing and must name a plan administrator

Benefits must be provided under a policy owned by the employee

For Annuities, payouts during which phase result in the payout being partially taxable as return on capital (income). (L4) I. Accmuluation Phase II. Payout Phase

Both I & II

For ILIT, A client paying LI premiums following a transfer of a policy to an irrevocable trust is an additional gift in which situation? I. The client makes the payment directly to the insurer II. The client makes a cash contribution to the trustee who then pays the premium. (L8)

Both I & II

If provisions of a ILIT required the trustee to pay to the insured's estate any cash needed, this would result in including those expenses in federal estate tax inclusion. The solution would be to create a provision into the trust document authorizing, but not directing, the trustee to: (L8) I. Lend money to the estate at an interest rate equal to or in reasonable excess of the current bank lending rate in the area II. Purchase assets at their fair market value from the estate of the insured and the estate of their spouse

Both I & II

LI proceeds, if includable in the insured's gross estate & generate federal estate taxes if the insured is in which situation?: (L8) I. insured is not survived by a spouse II. insured doesn't want to leave the insurance proceeds in a manner that will qualify for the estate tax marital deduction

Both I & II

Through careful planning it is possible to shelter all or a portion of even a very large transfer to a skip person through the use of: (L6) I. The annual exclusion II. The GST Tax exemption

Both I & II

To be considered life insurance for estate tax purposes, the death benefit must: I. Be payable unconditionally II. Have no effect on other legal liabilities or rights in connection with the insured's death

Both I & II

Which are basic ways an irrevocable trust becomea a life insurance trust? (L8) I. Client makes an absolute assignment of one or more life insurance policies to the trust II. Trust is established, cash contributions are made by the grantor to the trust & trustee uses cash/income to buy a new LI policy on the grantor's life

Both I & II

Which markets are Universal life popoular in? (L3) I. Family Market II. Business Market

Both I & II

Which of the following are potential uses of group life insurance? (R7) I. Provide insurance to a key employee with a health condition. II. Provide insurance protection up to $50,000 in a cost-effective manner.

Both I & II

Which of the following are primary uses for survivorship life? (R4) I. To provide coverage to protect two-career (income) families II. To provide estate liquidity at the second death of a married couple

Both I & II

Which of the following companies can legally issue participating (par) policies? (L5) I. Mutual Insurance Companies II. Stock Companies

Both I & II

Which of the following is (are) considered alternatives to Indexed Universal Life policies? (R3) I. Variable Life or Variable Universal Life II. Flexible Premium Deferred Index Annuity with term insurance

Both I & II

Which of the following is (are) true regarding the regulatory environment for No-Lapse Universal Life products? (R3) I. Complexity of these products is the result of tension between insurers and regulators II. There is a movement toward a more comprehensive reserving system

Both I & II

Which of the following may be reasons to establish a revocable life insurance trust? (R8) I. Retain ownership control over assets II. Assure dispositive objectives

Both I & II

Stock redemptions, a form of buy-sell agreement, has several potential disadvantages when used with which type of entity? (L9) A) Pass-through entity B) LLC C) C Corporation D) S Corporation

C) C Corporation

Which one of the following is an ancillary benefit to using life insurance in a qualified plan? (L9): A) Life insurance cash value growth is generally greater than alternative plan investments B) The life insurance coverage is highly portable for the employee C) Life insurance policy expenses are lower than other comparable investments D) Policy values increase the values on the corporate balance sheet

C) Life insurance policy expenses are lower than other comparable investments

All of the following are alternatives to using viatical and life settlements EXCEPT : (R7) A) Convert or exchange existing coverage into paid up coverage B) Borrow funds from a third party C) Purchase a private placement insurance policy D) Exercise accelerated death benefits

C) Purchase a private placement insurance policy

In a Section 1035 exchange, how is any gain in the surrendered contract treated and what is the new contract's basis? (R7) A) The gain is taxable as ordinary income, the basis is equal to the surrender value of the surrendered contract B) The gain is deferred, the basis is equal to the cash value of the surrendered contract C) The gain is deferred, the basis is equal to the basis of the surrendered contract D) The gain is taxable as ordinary income, the basis is reset to zero

C) The gain is deferred, the basis is equal to the basis of the surrendered contract

Which of these statements are false when it comes to NY Reg 187? A) The producer must have a reasonable basis to belive the policyholder has been informed of the various features & consequences of the product B) Companies are required to supervise C) You do not need to clarify the role that the producers play and how they're compensated

C) You do not need to clarify the role that the producers play and how they're compensated

All of the following should be analyzed to determine a pension maximization strategy's feasibility EXCEPT: (R9) A) available pension plan survivor elections B) comparison of monthly payments for both joint and single options C) investment options within the pension plan D) analysis of benefits, including cost-of-living adjustments

C) investment options within the pension plan

The traditional net cost method of comparison includes all of these EXCEPT (L5): A) it adds premiums over a stated period of time B) it divides the total net cost by the policy face amount C) it adjusts for the time value of money D) it subtracts total dividends from total premiums.

C) it adjusts for the time value of money

All of the following interests may allow deduction of at least part of a gift that represents less than 100 percent of the donor's incidents of ownership EXCEPT (R7): A) remainder interest in a CRAT B) charitable gift annuity C) reversionary interest in a pooled income fund D) remainder interest in a CRUT

C) reversionary interest in a pooled income fund

Which one of the following typically will happen to a collateral assignment plan when the insured employee retires? (R9): A) the employee receives no economic value or benefit at plan rollout B) the employer receives the policy's full cash value C) the plan will rollout to the employee D) the plan becomes the property of the employer's rabbi trust

C) the plan will rollout to the employee

Unincorporated associations or partnerships ( can / cannot ) be trustees.

Cannot be trustees since they are not separate legal entities

Which of the following might reasonably be considered a disadvantage of annuities? (R4) A) Tax-deferred growth B) Guaranteed growth with variable annuities C) Cash flow may not keep pace with inflation D) AGI may be reduced by deferring withdrawals

Cash flow may not keep pace with inflation

Which of the following factors is/are requirements for triggering the transfer for value rule? (L6) I. Consideration II. Cash value insurance policy

Consideration Only

When a client transfers a LI policy to an ILIT, a gift is made subject to the gift tax. If the annual exclusion is available, then the value of the gift is shielded. The value of the transfer in excess of the annual exclusion would be taxable to the extent not protected by the client's remaining lifetime exemption. If the annual exclusion is not available, the entire value of the contract on the date of the gift would be a taxable transfer to the extent not protected by the lifetime exemption. (L8)

Correct Answer :)

For irrevocable trusts, what is the solution to the problem of the beneficiary's inability to immediately use, possess, and enjoy the client's contribution to the trust? (L8)

Create a window of time through which the beneficiary could reach to take all or a part of that annual contribution or alternatively use the policy.

Which of the following would constitute a material change to a life insurance contract for purposes of the Modified Endowment Contract rules? (R7) A) A cost-of-living increase in the policy death benefit based on the consumer price index B) An increase in the policy death benefit due to the premiums paid for the policy to support the first seven contract years' level of benefits C) An increase in the policy death benefit due to the crediting of interest or other earnings D) An increase in the policy death benefit based on evidence of insurability

D) An increase in the policy death benefit based on evidence of insurability

The ruling/act which broadly prohibited the federal government from recognizing the legality of same-sex marriage was which one of these? (L10) A) Kennedy Ruling B) Windsor Decision C) Obergefell Decision D) Defense of Marriage Act

D) Defense of Marriage Act

In which way is VUL most like UL? (R3) A) Guaranteed Level Premiums B) Guaranteed minimum interest rate C) Investment Selection of Cash Account D) Flexible Premium Payments and Death Benefits

D) Flexible Premium Payments and Death Benefits

Which is not a tax implication of a Death Benefit Only Option (L9): A) No income tax is payable by the covered employee on the premiums that the employer pays for key-person insurance, which is used to finance the employer's obligation under a DBO plan. B) Premiums on the policy, of which the corporation is both the owner and beneficiary, are not deductible. C) Benefits paid by a corporation to the employee's beneficiary are taxable in full as ordinary income to the beneficiary, just as if the payments were a continuation of the deceased employee's salary. D) Payments from the corporation to the beneficiaries of the covered employee are not excludable from the employee's gross estate.

D) Payments from the corporation to the beneficiaries of the covered employee are not excludable from the employee's gross estate. (They are excludable from the employee's gross estate)

All of the following are disadvantages to placing a life insurance policy inside an ILIT EXCEPT (R8) A) Once established, the donor cannot revoke an ILIT B) The donor cannot change a beneficiary's interest C) The donor must relinquish any incidents of ownership D) Premium payments may be made by income-producing assets within the trust

D) Premium payments may be made by income-producing assets within the trust

Which one of the following is meant by "experience rating"? (R7) A) An employee is covered based upon his or her years of experience B) The coverage is terminated if the employer experiences any claims C) An employee's dependents may only be covered based on individual underwriting D) Premiums may be based on the number of deaths and plan administrative costs for a particular employer

D) Premiums may be based on the number of deaths and plan administrative costs for a particular employer

If a transfer for value problem exists when using group term insurance to fund a cross purchase agreement which will happen? (R9) A) The group term premim will be taxable income to the business owner B) The deceased's estate will be subject to a 10% tax penalty C) Proceeds likely will be taxable as capital gain D) Proceeds likely will be subject to ordinary income taxation

D) Proceeds likely will be subject to ordinary income taxation

Which one of the following correctly identifies the exclusion ratio? (R4) A) The percentage of income excluded from the estate upon death B) The account balance excluded from an annual administrative charge C) The taxation of payments based on the owner's tax deductions D) The amount of each period's payment that will be considered nontaxable

D) The amount of each period's payment that will be considered nontaxable

Which is not an advantage of the Death Benefit Only benefit ? (L9) A) If the employee is a shareholder who owns 50% or less of the stock of the corporation, payments under the DBO plan will be excludable from the covered employee's gross estate. B) During the employee's lifetime, since the employee has no current right to payments or to the life insurance financing the employer's obligation under the plan, the employee is not taxed on premium payments C) When payments are made by the employer, income is taxed at the brackets of the beneficiaries, which are likely to be lower than the covered employee's tax bracket. D) To avoid federal estate tax inclusion of payments, the employee can be given no right to name or veto the naming of the beneficiary of death benefit payments.

D) To avoid federal estate tax inclusion of payments, the employee can be given no right to name or veto the naming of the beneficiary of death benefit payments.

Which one of the following correctly identifies how a corporate trusteed plan operates? A) Premiums paid by the corporation will not be taxable to the shareholders B) Proceeds are reduced upon each shareholder's death C) Each business owner has an unlimited interest in the trust D) Trust is established by the company for the benefit of the shareholders

D) Trust is established by the company for the benefit of the shareholders

All of the following are permitted exchanges under Section 1035 EXCEPT: (R7) A) life insurance contract for life insurance contract B) life insurance contract for annuity contract C) life insurance contract for endowment contract D) annuity contract for endowment contract

D) annuity contract for endowment contract

Which one of the following is a correct description of the basic annual premium on a ledger statement? (R2) A) net premium charged, without dividends, on a reissue basis B) net projected premium on a reissue basis C) gross premium charged, with dividends, on a non-reissue basis D) gross premium charged, without dividends, on a non-reissue basis

D) gross premium charged, without dividends, on a non-reissue basis

All of the following are advantages to a Section 162 plan EXCEPT (R9): A) life insurance is provided to a key employee at little or no out-of-pocket cost B) the plan can be terminated without justification to the IRS or Department of Labor C) the life insurance is portable, because it is the employee's property D) only the death benefit has value to the employee, the cash value cannot be used

D) only the death benefit has value to the employee, the cash value cannot be used

All of the following are key goals of DBO plans EXCEPT: (R9) A) provide a significant death benefit B) generate income or capital for employee's family C) provide a counterbalance to limitations on highly compensated employees D) provide additional funding for a qualified retirement plan

D) provide additional funding for a qualified retirement plan

Which of the following is true about classic and reverse split-dollar plans? (R9): A) classic: employer pays an amount equal to the cost of the pure term insurance portion of the policy B) classic: employee essentially pays an amount equal to the cash surrender value C) reverse: employee pays an amount equal to the cost of the pure term insurance portion of the policy D) reverse: employer pays an amount equal to the cost of the pure term insurance portion of the policy

D) reverse: employer pays an amount equal to the cost of the pure term insurance portion of the policy

All of the following are features of a Section 162 (Executive Bonus) plan EXCEPT (R9): A) the employee is charged with a bonus in an amount equal to the premium B) the employer will take an income tax deduction on the premium amount paid C) the employer pays life insurance premiums for an employee D) the employer owns the policy's cash value, but not the death benefit

D) the employer owns the policy's cash value, but not the death benefit

A gift of life insurance are favored for all of the following reasons EXCEPT: (R6) A) the gift tax of the transfer is relatively low B) there is no gain for income tax purposes at death C) The gift may increase the donor's spendable income D) the policy is likely to be surrendered for its cash value by the donee

D) the policy is likely to be surrendered for its cash value by the donee

Which one of the following changes under a VUL contract generally will trigger a recomputation of the seven-pay test or material change rules? (R3)

Death benefit increase requiring evidence of insurability

( Direct / Indirect ) gifts are less likely to cause an audit or generate litigation, and are the recommended way to secure a deduction for gifts to be used to pay premiums. (L7)

Direct

The ( direct / indirect ) technique of giving to charity through LI policies is more expensive for the client? (L7)

Direct technique

An irrevocable trust typically (does / does not) offer protection from creditors (L8)

Does

The insurance company ( does / does not ) guarantee the cash values of VL Products. (L3)

Does not

For Equity- Indexed Annuities (EIAs), the gain on the index (does / does not ) include dividends. (L4)

Does not - this loss of dividend income, the cap on market gains, can be a significant drag on performance

Why buy life insurance in a qualified retirement plan? (L9)

Doing so permits buyers to use pre-tax dollars to pay premiums that would otherwise not be tax-deductible. In the event of the premature death of the plan participant, the retirement benefit is fully funded. This also provides an income-tax-free death benefit to the policy beneficiaries and provides asset protection

Exclusion Ratio Equation

Exclusion Ratio (%) = Investment in Contract / Expected Return

How does one calculate the "pure insurance element"? (L4)

Face amount minus cash surrender value

True or False: A DBO plan is typically designed to benefit all or most of an employer's employees in order to meet the requirements for qualified plans. (Q9)

False

True or False: In order to take a deduction for amounts paid under a Section 162 plan, the corporation must pay the bonus directly to the insurer providing the coverage. (Q9)

False

True or False: Key employee life insurance is an insurance policy owned by a business and payable to the insured's beneficiary. (Q9)

False

True or False: A "salary continuation" plan involves the employee voluntarily choosing to defer a portion of their future salary or bonus as a means of deferring taxes. (Q9)

False - A salary continuation plan generally does not include a reduction of the employee's salary.

True or False: Payments of disability income benefits are always income tax free. (Q4)

False - If the premium is paid by the insured's employer, the benefit will be taxable to the employee.

True or False: Split-dollar life insurance is a specialized type of life insurance designed to meet specific business needs. (Q9)

False - Split-dollar life insurance is designed to meet the needs of the owner or executive.

True or False: Term policies can generally provide the same lifetime guarantees as a no-lapse universal life (NLUL) product. (Q3)

False - Term Policies do not provide lifetime guarantees

True or False: The Generation- Skipping Transfer (GST) tax applies to transfers to any person more than one generation removed from the transferor. (Q6)

False - The GST tax does not apply to transfers of assets to grandparents

True or False: Death benefits on joint life coverage are generally includable in gross income by the beneficiary. (Q4)

False - The death benefit of a joint life (first-to-die) policy is treated the same as a single life policy

True or False: The employer is taxed on the value of the economic benefit received from the employee's participation in the split-dollar arrangement (Q9)

False - The employee is taxed on value of economic benefit

True or False: A survivorship life policy on a married couple becomes void if the couple divorces. (Q4)

False - The policy remains in force, but may contain a provision allowing it to be split into separate single life policies

True or False: Life settlements generally are entered into to provide for the costs of healthcare and medical expenses of the insured. (Q7)

False - Viatical settlements are often used for those purposes

True or False: In a 1035 exchange, gains are deferred but losses may be taken at the time of the exchange. (Q7)

False - both gains and losses are deferred

True or False: An organization that is operated exclusively to foster national or international amateur sports competition is not considered a qualified charity. (L7)

False - it is considered a qualified charity

True or False: One of the advantages of group term insurance is that the premiums remain level on a per-employee basis regardless of the ages of the employees. (Q7)

False - premiums generally increase with age

True or False: "With transfers to qualified charities, regardless of the size of the gift of life insurance, no federal gift taxes are ever payable on transfers those transfers." (L7)

False - there have to be certain requirements met for transfers be federally tax free

What are the advantages of pension maximization? (L9)

Flexibility & higher income - you can do more with LI proceeds / have more options than with a Joint & Survivor Annuity

What are 3 advantages to non-qualified compensation deferral? (L9)

Flexibility, Tax-Deferral, Tax-Leverage

When you think of Universal life what 3 features need to come to mind? (L3)

Flexible Premium, Current Assumption, Adjustable Death benefit

Which one of the following features of a universal life policy may be most responsible for the policy being classified as a MEC? (R3)

Flexible premiums and death benefit

Which one of the following is NOT a reason to use variable life products? (L3)

Guaranteed level premiums

If the LI policy falls within the transfer for value rule, the result is (tax -free benefits / harsh penalty)? (L6)

Harsh penalty

When suggesting the use of a revocable trust a planner must consider: (L8) I. The importance of a will II. The imporatnce of a durable power of the attorney III. Who the trustee will be IV. The importance of a limited power of attorney

I & II

Which is true of Business DOE? (L4) I. DOE is meant for small to medium sized closely held business owners II. One should not buy DOE for their total monthly overhead exp for the business III. Covered expenses do not include interest on debts and loan payments IV. DOE is a simple product

I & II

Which is True for Variable Life? (L3) I. Policyowner gets to choose how premiums are invested II. Premium amounts are flexible III. Cash Values fluctuate depending on performance of underlying investment IV. Guaranteed Minimum interest rates on cash values

I & III

Which is true about IULs? (L3) I. Most IUL policies charge back-end loads or surrender charges II. Most IUL policies charge front end loads or surrender charges III. Most inurers credit the policyowner's entire premium to the cash value

I & III

Which of the following are true of ILIT? (L8) I. The twin goals of ILIT are estate liquidity and excluding LI proceeds from the estate II. Most irrevocable trusts are "funded" III. The preferred way to pay premiums on policies is to make annual gifts to the trusteee in amounts large enough for the trustee to pay premiums & have enough cash left over to cover any incidental trust expenses IV. The trustee is not allowed to the the insured's estate any cash

I & III

A transfer to which of the following trusts might qualify for the GST tax annual exclusion? I. a trust for the benefit of the donor's grandchildren II. a trust for the benefit of the donor's spouse and grandchildren

I only

Life insurance proceeds would be considered "payable for the benefit of a decedent's estate" if used to pay for which of the following? (R6) I. Debts of the estate II. Income to the decedent spouse

I only

To which of the following individuals may a life insurance policy from a qualified plan be distributed? (R9) I. the insured plan participant II. the employer or plan administrator

I only

Which of the following are advantages to the insurer of No-Lapse Universal Life policies? (R3) I. The criteria required to maintain the guarantee help ensure premium persistency II. Because of the additional guarantees, premiums can often be reduced or skipped

I only

Which of the following are interest crediting strategies that insurance companies use for their Indexed Universal Life policies? (R3) I. Annual point-to-point II. Participation rate

I only

Which of the following are possible uses for annuities? (R4) I. As a supplement to an IRA II. Provide tax-free earnings and income

I only

Which of the following are reasons why an individual might want to make a gift of life insurance? (R8) I. Proceeds can be removed from the estate at a relatively low gift tax cost II. The policy cost basis is transferred to the donee

I only

Which of the following is (are) true regarding business overhead disability insurance? (R I. Benefit payments are taxable, but the expenses they cover are deductible, so the tax impact is neutral II. Similar to life insurance, benefits are taxable income to the employer

I only

Which of the following is (are) true regarding the advantages of Indexed Universal Life (IUL) policies? (R3) I. Possibility of high positive returns II. Guaranteed lapse prevention

I only

Which of the following will be treated as a taxable sale and repurchase? (L3) I. VUL & VL Switchess between funds in a family of mutual funds II. Transfers or switches between funds from one insurer to another for VLs & VULs

I only

Which of these are a skip person? (L6) I. Transferror's Grandchild II. Transferror's Grandmother III. Transferror's Child

I only

The main NLUL product designs are: (L3) I. Stipulated-premium II. Shadow-account III. Hybrid designs IV. Portfolio-indexed

I, II, III

The seven-pay test to see if a policy is a MEC must be applied in which of the following situations:(L7) I. To initially test policies entered into after June 20, 1988 II. To retest policies entered into after June 20, 1988 if death benefits are reduced within the first seven contract years III. To test policies who decrease their annually IV. To test or retest any policy, even those entered into before June 21, 1988, when there is a material change in future benefits

I, II, III

When would one typically use a Joint life policy? (L4) I. In the dual-income family market II. In the key empoyee business insurance market III. For use in business buy- sell funding IV. As an alternative to VULs

I, II, III

Which of the following are true about annuities (L4) I. annuities can avoid probate II. annuities can be a supplement to an IRA III. annuities have a guaranteed level of interest IV. Annuities so not protect against interest rate risk , reinvestment risk , market risk

I, II, III

Which of the following situations could trigger gift tax problems? I. A policy on one person's life is owned by a second person and payable to a third II. A policy where one party pays premiums on behalf of another III. When a client makes a gratuitous transfer of a policy

I, II, III

Which is true of ILIT Income Tax Implications: (L8) I. Most ILIT don't have income tax problems II. To the extent income from the ILIT is paid to the trust's beneficiaries it's taxed to them rather than to the trust III. If the client's spouse has the ability to revoke the trust that does not make it a grantor trust IV. If income is used to pay premiums on a policy insuring the life of the client or their spouse the trust becomes a grantor trust

I, II, IV

Which of the following 1035 exchanges would result in no gain recognized: (L7) I. Life insurnace for an endowment contract II. Ordinary LI for an annuity III. Annuity for an ordinary LI IV. An endowment for an annuity

I, II, IV

Which of the following are true in regards to revocable living trusts: (L8) I. For most income tax purposes, there is no significant impact when assets are transferred to a revocable living trust II. it is generally safe to transfer installment obligations, a principal residence, a partnership interest, or a U.S. savings bond to a revocable living trust III. IRAs, retirement plans, and annuities have a tax-neutral effect in a revocable trust IV. You have the ability to treat the grantor and trust synonymously for most income tax purposes

I, II, IV

When would a company use a Death Benefit Only option? (L9) I) When the employer client seeks an employee benefit to recruit, retain, reward, and counterbalance the limitations upon key employees found in qualified retirement plans. II) When the employer wants the employee to pick and choose who will be covered, under what terms and conditions, and at what amounts. III) When the employer client wants an employee benefit that is simple, cost effective, and free from administrative burdens. IV) When a client has a large estate subject to federal estate tax, is in a high income tax bracket, has no need for additional retirement income.

I, III, & IV

When a client transfers a life insurance policy to an irrevocable trust, a gift is made subject to the gift tax. The tax, if any, payable on that transfer depends on which of the following? (L8) I. The FMV of the policy II. The replacement value of the policy III. The availability of the annual exclusion IV. The avaialbility of the lifetime exemption

I, III, IV

Which is true of FPDA (L4)? I. The insurer will charge a back-end load if a cash withdrawal in a year exceeds a certain % of the fund balance II. Most FPDAs charge front-end loads III. Surrender charges will reduce as time goes on IV. FPDAs usually pay significantly higher than the guaranteed minimum interest rate

I, III, IV

Which of the following are the critical factors in choosing the best VL or VUL policies: I. The policy loadings and expenses II. Duration of the premium guarantee III. The suitability and variety of the investment options IV. The relative performance of the company's alternative investment accounts

I, III, IV

Which of the following is/are the tax classifications of living beneficts for a LI policy: (R2) I. Annuity payments II. Lump sum Death benefit III. Payments of interest only IV. Amts received as an annuity

I, III, IV

Which ways are VLs & VULs similar? (L3) I. Policyowner chooses how the premiums are invested II. Policiyowner may increase and decrease benefit III. CV fluctuates depending on performance of underlying investments IV. Guaranteed Minimum interest rate on cash values

I, III, IV

In what ways are UL & VUL different? (L3) I. Policyowner may vary frequency of amt of premiums paid II. Guaranteed Minimum Interest rate on cash values III. Policyowner chooses how premiums are invested IV. Death Benefit Options A & B available

II & III

Which of the following are true about NLUL? (L3) I. NLULs are very similar to UL policies II. The "Secondary guarantee feature" is that the DB will reamin inforce and level even if cash value falls to zero as long as premiums are paid III. Insurers will offer NLUL to a person of any age IV. NLULs have high premiums

II & III

IRC Section 79 allows Group LI to have favorable tax treatment if which of the following are met: (L7) I. The plan must be established and maintained in writing II. the policy itself must state the portion of the death benefit that is group term coverage III. The plan must provide a procedure for amending the plan IV. the coverage must not be less than the difference between the total death benefit provided under the policy and the employee's deemed death benefit at the end of the policy year.

II & IV

What type of employers should take advantage of a non-qualified deferred compensation plan? (L9) I) S Corporations II) C Corporations III) LLCs IV) Sole proprietorship

II Only

A Variable Annuitization promises to pay: (L4) I. A fixed number of dollars each month II. A fixed number of retirement income units

II only

Flexible Premium Deferred Annuity (FPDA)'s flexibility of premium refers to : I. The premium amount II. The premium frequency

II only

Which of the following Annuities are known for having bailout provisions? (L4) I. Flexible Premium Deferred Annuity (FPDA) II. Single-Premium Deferred Annuity (SPDA) III. Equity- Indexed Annuities (EIAS)

II only

Which of the following are tax implications of group life insurance? (R7) I. Employees do not have to report any income for the first $100,000 of life insurance coverage. II. Discrimination in favor of key employees may make the cost of coverage taxable to key employees.

II only

Which of the following is (are) correct when comparing an FPDA and an SPDA? (R4) I. An SPDA annuity phase begins at age 65 II. An FPDA annuity phase is deferred

II only

Which of the following is (are) true regarding interest-crediting strategies used in Indexed Universal Life? (R3) I. It can easily be determined in advance which strategy will result in the highest return II. Many policies require an owner to commit to a strategy for a long period of time

II only

Which of the following riders or options may be used to provide income to the insured? (R5) I. Bailout provision II. Accelerated-death-benefit

II only

For Group Life to meet eligibility nondiscrimination rules, it must meet at least one of the following tests. But which ones? (L7) I. The employer must pay total premiums for at least 60% of the covered participants II. The plan benefits 70 percent or more of all of the employer's employees III. At least 85 percent of plan participants are not key employees IV. The plan benefits employees under an employer-specified classification that is approved by the IRS as nondiscriminatory

II, III, IV

Which is true of Single Premium Deferred Annuities (SPDA)? I. Variable Annuities are often SPDA II. The interest rate paid (assuming it's above the guaranteed minimum rate) is subject to change by the insurer III. Most SPDAs charge back-end loads IV. Partial withdrawals are often allowed without imposing a surrender charge

II, III, IV

Which of the following are true about the Interpolated Terminal Reserve (ITR): I. The ITR is usually calculated by the policy owner II. The ITR is the value of the gift given for gift tax purposes III. The ITR is the taxable amount subject to gift taxes IV. The ITR is usually more than the cash value

II, III, IV

Which of the following are true of revocable life insurance trusts? (L8) I. Not all client assets (e.g., life insurance, pension plan, IRA, and personal property) can be "poured over" into a revocable living trust. II. Compared to the use of settlement options, a trust makes it possible for the beneficiary to receive greater income and appreciation of capital. III. Use of a trust makes the disposition of a policy easier where the beneficiary predeceases the insured. IV. Probate is avoided with respect to a policy held by or payable to a revocable trust that continues after the beneficiary's death.

II, III, IV

Which of the following insurer experiences will influence IF dividends are paid? (L5) I. Morbitity experience II. Mortality experience III. Interest IV. Loading Expenses

II, III, IV

Which of these are gift tax considerations when it comes to revocable trusts? (L8) I. If the proceeds are removed from the estate, it is considered a gift II. No gift until the client gives up the power to revoke III. Third-party payment of premiums is a gift IV. Gift when the policy is owned by someone other than the insured and is paid to a third party

II, III, IV

Life insurance can be owned by which of the following qualified retirement plans? (L9) I) IRA II) SEP III) Profit sharing IV) Definied- Benefit Plans

III & IV

Which is false on how are non-qualified deferred compensation plans taxed? (L9) I) Employees not taxed on benefits until they get an actual distribution. II) Growth over deferral period is growth tax-free. III) Employers are taxed on the earnings until distribution IV) Employer deductions are based upon benefits paid out of the plan, rather than contributions paid into the plan

III) Employers are taxed on the earnings until distribution

What is the "Transfer of Value" Rule? (L6)

If a life policy (or any interest in that policy) is transferred for something of value (e.g., money, property, etc.), a portion of the death benefit is subject to taxation as ordinary income. Another way to explain it is, once the recipient of a life insurance policy transfers the benefit to another party, the tax-exempt status of the policy will be removed and the purchaser will have to pay income tax on a portion of the death benefit.

For Survivorship Life policies when would the policy be included in the estate? (L4)

If both spouses die within 3 years after the policy has transferred ownership

Usually when the employer is the payer for the employees' DI policy, the employer can deduct the premiums in the year paid. In what situation would the employer NOT be able to deduct the premium? (L4)

If the benefit went to anyone other than the employee or their beneficiarires

When a LI policy is given to a charity, what would cause the entire death benefit amt paid out subject to federal estate tax in the insured's gross estate?

If the client holds any incident of ownership of the policy at death, regardless of whether the charity owns the policy or whether a charity is irrevocably named as the beneficiary

What is the difference between a cross-purchase agreement vs a stock redemption? (L9)

In a cross-purchase agreement, the remaining OWNERS/PARTNERSrs purchase the share of the business that is for sale. In an sotck redemption agreement , the BUSINESS ENTITY itself buys the deceased's share of the business.

A charity owns a policy on the client's life, but the insured is the one paying premiums. This form of giving is ( direct / indirect ). THe premiums are deductible as a gift up to ______% of the client's ( total gift amount / adjusted gross income ). (L7)

Indirect ; up to 30% of the client's AGI

Group LI ( is / is not ) subject to ERISA limitations (L7)

Is - group LI is considered a welfare benefit plan

Group insurance is almost always issued at yearly renewable term insurance. What should that mean to you?

It means that the coverage expires at the end of each year, but is automatically renewed without a medical and without evidence of insurability.

Any polcies newly issued on or after what date need to be tested with the 7 -pay test to see if it's a MEC. (L7)

June 20, 1988

What is the "Incidental Test" with regards to LI in a qualified retirement plan? (L9)

LI can be used to provide an incidental DB to participants in a qualified retirement plan. The IRS considers any non-retirement benefit in a qualified plan to be 'incidental' as long as the cost of that benefit is less than 25% of the total cost of the plan

Annuity withdrawals during the accumulation phase is taxed on ( FIFO / LIFO) (L4)

LIFO

Accelerated death benefits are subject to the same limits as ____________________? (L6)

LTC benefits

Which insurance product is often the preferred type of insurance for split dollar arrangements? (L2)

Level premium whole life insurance

What is almost always used to finance the employer's obligation under a Death Benefit Option (DBO)? (L9)

Life Insurance - this makes sure there's adequate funds availble to make promised payments. BUT the LI shouldn't be mentioned in the contract w/ the employee to avoid any unnecesary estate tax inclusion, income taxation on premium payments, etc.

Your client has 15 years left to live give or take and they want to sell their life policy to a third party. Would you suggest a viatical or life settlement? (L7)

Life settlement

Which of the following is a potential problem in some survivorship life policies after the first insured dies? (R4)

Mortality charges and premiums may increase

ATRA implemented which of the following changes: I) The wage withholding tables were modified for high-income taxpayers II) The top individual tax rate decreased (L10)

Neither I nor II

In which of the following situations has the insured made a completed gift of a life insurance policy? (R6) I. a transfer to a revocable trust created by the insured II. irrevocably designating his child as policy beneficiary

Neither I nor II

Which of the following are potential markets for joint life insurance? (R4) I. Unmarried head of household II. Charitable gift funding

Neither I nor II

Which of the following is (are) true regarding short-term disability insurance? (R4) I. All states require employers to provide short-term disability benefits II. These plans are provided through government programs

Neither I nor II

Which of the following should be included when using a revocable life insurance trust? (R8) I. A limited power of attorney II. Advance medical directives

Neither I nor II

When does the company have ownership of a Section 162 Plan? (L9)

Never, the company never has incidents of ownership

Which of the following apply to Variable Life? (L3) I. Flexible Premiums II. Policyowner can increase/decrease benefit III. Partial Withdrawals from Cash values are allowed IV. Death benefit options A & B are available

None of the above

If both employer and employee contribute to the cost/premiums of the DI policy, how is the DI benefit taxed? (L4)

Only a portion of the benefit is taxed / considered income to the employee based on how much they contributed

What is done with premiums paid to a Variable Annuity during the accumulation phase? (L4)

Premiums are used to purchase units of credits in separate accounts and the number of credits purchased depends on the current valuation of each unit for that day in dollars

What are the employer tax implications of Group Life? (L4) Premiums: Exceptions? (x2):

Premiums: employer paid premiums are income tax deductible Exceptions: 1) if the employer is directly or indirectly the beneficiary 2) no deduction allowed if the coverage is on partners or sole proprietors (considered personal coverage)

Pension Maximization involves what two products? (L9)

Single Life Annuity & Life Insurance

Equity-Indedxed Annuities (EIAs) promise to credit to the annuity-holder (some / all) of the amount by which the underlying index has increased, subject to annual caps. If the index goes down though they ( will / will not ) cut the investor's losses at zero (or guarantee a slightly positive return). (L4)

Some ; will

Life insurance policies are primarily governed by _____________________ laws. (L1)

State

The concept of "insurable interest" is typically subject to interpretation of federal or state law? (L10)

State law

NLUL serves as an extended-period, low-cost, level-premium, fixed-death-benefit ______________________ insurance policy. Think Secondary Guarantee (L3)

Term

What should you buy if the need will probably last for 10 years or less?

Term insurance

A split- dollar arrangement that was entered into/materially modified after Septemeber 17th, 2003 is goverened tax-wise by ________________________. What does this mean? (L9)

The Final Split-Dollar Regulations that were issued in 2003 - this means that the arrangement will be treated as the LI policy owner providing economic benefits to the non-owner and will be treated as the non-owner making loans to the owner.

The cash value at the end of any given year is equal to: (L3)

The cash value from the end of the prior year + Plus premiums (or less withdrawals) paid during the year - Less expense and mortality charges + Plus interest credited

If your client purchases a policy on their life and donates it to a charity in a state in which the charity has no insurable interest in the client's life, what would happen? (L7)

The income, gift, and estate tax deduction would be disallowed and the proceeds would be included in the insured's estate. This is b/c the IRS could argue that the decedent's estate and heirs can claim the policy proceeds despite the charity's ownership becuase of the lack of insurable interest.

There ( is / is no ) gain (for income tax purposes) when a LI policies mature at death. What if that policy was obtained as a gift? (L6)

There is no gain in either situation

The principal advantage of pension maximization is increased planning flexibility. (Q9)

True

True or False : Ordinarily the cost of life insurance purchased at retirement in an amount sufficient for a pension maximization plan will be greater than the differential between the single and joint life annuity payouts. (Q9)

True

True or False: A 10% penalty applies to certain distributions from life insurance policies that are treated as modified endowment contracts. (Q7)

True

True or False: A charitable remainder trust allows a donor to make a currently deductible charitable gift of appreciated property while retaining a lifetime income interest. (Q7)

True

True or False: A combination of joint life and single life insurance is frequently more cost effective than two separate single life policies.(Q4)

True

True or False: A donor who names a qualified charity as recipient of any dividends from a life insurance policy receives an income tax deduction as the dividends are paid. (Q7)

True

True or False: A revocable trust will automatically become irrevocable at death. (L8)

True

True or False: Changes to a no-lapse universal life (NLUL) policy, such as loans, partial withdrawals, changes in the death benefit, changes in scheduled premiums, may terminate the guarantee. (Q3)

True

True or False: DBO plans can be designed to avoid most of the requirements of ERISA. (Q9)

True

True or False: If an ILIT is treated as a grantor trust, the income earned by the trust will be taxed to the grantor, AND any deductions, gains, losses, or credits realized by the trust can be used by the grantor. (L8)

True

True or False: If an insured individual dies under circumstances that suggest suicide, the presumption is that they did not and the burden of proof is on the insurer to prove that suicide, in fact, occurred. (Q5)

True

True or False: Joint life coverage is appropriate in situations where the need for insurance is dependent on when someone dies rather than who dies. (Q4)

True

True or False: No deduction is permitted to an employer sponsoring a nonqualified deferred compensation plan until income is taxable to the employee. (Q9)

True

True or False: One disadvantage of universal life is that policy owners bear more risk of adverse trends in mortality or expenses than if they owned traditional whole life policies. (Q3)

True

True or False: One of the primary purposes of a buy/sell agreement is to create a market for a shareholder's stock. (Q9)

True

True or False: Premiums for survivorship life policies are lower than for equivalent coverage in two separate policies. (Q4)

True

True or False: Terminated employees can convert their group life policies with the company to individual policies. (L7)

True

True or False: The common accident provision is used to determine whether the principal beneficiary survived the insured (Q5)

True

True or False: The sale of a key employee policy to the employee following their retirement or termination will trigger the transfer-for-value rule. (Q9)

True

True or False: Variable annuities often have additional features to help manage the risk of their underlying investments, such as guaranteed death benefits or newer living benefits that provide company guaranteed payments for owners or beneficiaries. (L4)

True

True or False: Variable life is a whole life policy in which the policyowners bear all investment risk. (Q3)

True

True or False: Transfers to the typical irrevocable life insurance trust will not qualify for the GST tax annual exclusion. (L6)

True - because usually it gives a trustee sprinkle and spray powers to distribute income and principal among, not only grandchildren, but also children and the spouse of the client-transferor.

True or False: An immediate annuity has no accumulation phase

True - immediate annuities only have payout phases

True or False: In Group LI, the insured isn't part of the contract. (L7)

True - only the insurance company and the employer are part of the contract

Most irrevocable trusts are ( funded / unfunded). (L8)

Unfunded - they usually don't contain more than LI policies

What product is indicated whenever policy owners desire the ultimate flexibility in life insurance? (L3)

Universal Life

What is the main difference between Variable annuities and Equity - indexed annuities? (L4)

VAs invest directly into the securities of a market index through subaccounts. For EIAs the assets are held directly held by the insurance company and they invest the funds as necessary to get a specific crediting rate

( VL / VUL ) offers greater certainty of death benefit levels than ( VL / VUL) as long as policyowners continue to pay premiums at the level necessary to maintain the death benefit. (L3)

VUL offers greater certainty of death benefit levels than VL

Between Universal Life, Variable Life, and VUL - which is the most similar to a tradtional Whole Life? (L3)

Variable Life

If your client has a life expectancy of less than 2 yeras due to a terminal illness, would you suggest a viatical or life settlement? (L7)

Viatical Settlement

Which settlement pays out more, a viatical or life settlement?

Viatical settlement

In what situation would it be more beneficial for a couple to select a joint & survivor annuity versus a Single life annuity when it comes to pension maximization? (L9)

When the annuitant/ person getting the pension is going to live longer. This is because you want the person getting the high pension payout to live longer because the longer they're alive, the longer the couple will get paid those high payments. So if Wendy is going to die before Colvin it may be more beneficial to get a J&S annuity because if Colvin pases first then there won't be a loss of annuity payout

How do Variable annuities determine the dollar amount that gets paid out during the payout phase? (L4)

When the payout phase begins, the # of accumulation units buy retirement income units. VAs pay in units, not dollars. The investment portfolio has to earn an Assumed Investment Rate (AIR). If the investment performance exceeds the AIR, the level of benefit payments will increase and vice versa

Between Ordinary whole life and tax-free muni bonds, which typically pays higher effective interest on cash values? (L2)

Whole Life

If death proceeds are received before death of the insured due to a terminal illness, the death proceeds (will / will not) be included in the insured's gross income. (L6)

Will not

With an employer owned life policy, death proceeds (will / will not) be included in the employer's income if the death proceeds are used to purchase an equity interest from a family member, beneficiary, trust or estate. (L6)

Will not

Group insurance is almost always issued as what kind of insurance? (L7)

Yearly renewable (one-year) term insurance

Suppose a key employee/controlling stockholder of a corporation dies and the corporation has complete control over the policy, or at least the right to borrow against the policy. In that case, will the employee/stockholder be treated as having sufficient incidents of ownership for the policy to be included in their estate? (L4)

Yes

What is the definition of life insurance for federal estate tax purposes? (L6)

a contract under which the insurer agrees to pay a specified death benefit to a specified beneficiary at the death of the insured. It's Life insurance as long as there is both: (a) risk shifting; and (b) risk sharing in the event of the policyowner's loss through the insured's death.

What is the Rule of Perpetuities? (Q8)

a state law restriction designed to limit the period during which a trust can withhold property or its income from outright ownership

For a business with 2 business owners with a joint life cross-purchase buy-sell agreement policy you want the owner(s) to be _________________________. (L4)

a trusteed plan

Classification as a fixed or variable annuity refers to the underlying investments during the ( accumulation / payout ) phase of the annuity? (L4)

accumulation

Colvin has LI in a qualified retirement plan. His employer makes contributions and he wants to contribute as well. Colvin may be able to contribute as well with (pre-tax/ after- tax) contributions. (L9)

after-tax

"In Addition Plans" (non qualified deferred compensation plan) (L9)

aka "salary continuation" or "supplement executive retirement plans" (SERPs) used to provide retirement benefits to a select group of executives/key employees. This is a non-elective form of deferred compensation. The employer provides it in adtion to the executive's salary & other compensation.

Elective PLan

aka "salary reduction" or "salary deferral" plans a select group of key employees voluntarily choose to defer a portion of their future salary as a means of tax deferred savings

Because corporations frequently own JL and they use it for business purposes such as key person insurance or stock redemption buy-sell plans, the corporate ___________________ tax may be a consideration in its use. (L4)

alternative minimum tax (AMT)

The _____________________ for each Crummey power holder is typically $10,000. (Q8)

annual gift-tax exclusion

The tax treatment of certain amounts received from MECs prior to death ( aka living withdrawals) is generally the same as the tax treatment afforded to _______________ distributions. (L7)

annuity

For a MEC'd policy the tax treatment of cash value accumulation and death benefit proceeds ( are / are not ) the same as for non-MECS. (L7)

are

Premiums on life insurance in a qualified plan ( are / are not ) deductible by the employer as part of its annual contribution for covered employees. (Q9)

are

Life insurance (can/cannot) be included in defined benefit retirement plans. (L10)

can

A beneficiary ( can / cannot ) collect the proceeds of a life insurance policy if he or she kills the insured in an accident ( may involve gross carelessness or manslaughter) or in self defense. (L5)

can collect proceeds

Government policies ( can / cannot ) be protected under Section 1035 (L7).

cannot - because government policies are owned by the government so they can't be assigned and therefore cannot be exchanged

One way to imeplement a Wealth Replacement Strategy is to create a ( personal / charitable ) remainder trust. Then fund it with highly appreciated property that generates a ( high / low ) income yield. The ( client / charity ) receives an annuity from the trust, with the remaining principal going to the ( client / charity ) upon termination of the trust. (L7)

charitable remainder trust ; low income yield ; client receives annuity; principal goes to charity

One way to imeplement a Wealth Replacement Strategy is to create a(n) __________________ trust. Then fund it with ____________________ property that generates a ( high / low ) income yield. The client receives a(n) _____________ from the trust, with the remaining principal going to the charity (when)______________________________. (L7)

create a charitable remainder trust ; fund it with highly appreciated property that generates a low income yield ; client receives an annuity from the trust ; remaining principal goes to charity when the trust terminates

IRC Section 22 (L4) offers an income tax ( deduction / credit ) to qualified individuals who were ( partially / totally ) disabled when they retired. (L4)

credit; totally disabled

Where shareholders own insurance on the life or lives of other shareholders (aka a ________________), at the death of one shareholder, the policy or policies owned by the other shareholders on his life (will/ will not) be includable in his estate.

cross purchase plan; will not

Which of the following is the length of time required to avoid including life insurance proceeds that are in an ILIT from the estate? (L8)

3 years

LI Contracts must meet Code section _________ requirements of either a cash value accumulation test meet certain guideline premium requirements. (L6)

7702

Which of the following is not an advantage to having LI through a qualified retirement plan? (L9) A) Upon the death of the insured, income is recognized by the beneficiary in an amount equal to the cash value amt immediately before the insured's death. B) The premium is deductible by the employer as part of its annual contribution on behalf of covered employees. C) In comparison to group term life insurance costs, life insurance within a qualified plan may be less expensive to the employee. D) Life insurance in the plan transfers the death benefit risk to the insurer.

A) Upon the death of the insured, income is recognized by the beneficiary in an amount equal to the cash value amt immediately before the insured's death

Which of these could trigger the use of a buy-sell agreement: (L9) I) Death II) Disability / Retirement III) Wanting to withdrawl from the business early IV) Property going to creditors or in a divorce

All of the above

All of the following are ways to fund a buy-sell agreement without using life insurance EXCEPT: (L9) A) Installment payments B) Borrowing C) Cash D) Stock Recapitalization

D) Stock Recapitalization

When calculating the portion of an installment payment that is recoverable income tax-free, which of the following must be taken into account? (L6) 1. Beneficiary's DOB 2. Face amt of the policy

Face amount of the policy

True or False: Insurance owned on the life of another is valued at face value in a decedent's estate. (Q6)

False - The insurance death benefit is only included in the decedent's estate if they had an "incidents of ownership" in the policy within the prior three years or if the death benefit was payable to the decedent's estate.

Which of the following are true regarding the sale of a life insurance policy? (L6) I) There are clear-cut rules regarding the sale of a policy from one irrevocable life insurance trust (ILIT) to another ILIT II) The sale of a policy will not avoid the so-called "three year rule" III) For a sale from an employer to an employee the Interpolated Terminal Reserve (ITR) value needs to be considered IV) For a sale to an unrelated party, the value should be the sale price

For a sale to an unrelated party, the value should be the sale price

ATRA did which of the following (L10) : I) Made planners revise their practice to focus less on estate planning & more on income and business planning II) Encouraged busineses to use various tax-deductible strategies III) Allowed businesses to use voluntary derferral plans to reduce executives' taxable compensation, which is a type of nonqualified deferred compensation plan

I, II, & III

Important planning issues that arose as a result of the overturn of DOMA (Defense of Marriage Act) include which of the following: (L10) I) Insurable Interest II) Qualified benefit plans III) Transfer for value IV) Second-to-die insurance

I, II, & IV

Split-dollar life insurance arrangements are tricky and are potential transfer for value problem areas when: (L6) I. The insured's wife owns a policy on his life. II. An insured owns all of the stock of a professional corporation. III. A corporation owns several policies on the life of its shareholder.

I, II, III

Which of the following are true about the taxNo taxable gift occurs upon the execution of a buy-sell agreement implications of a buy-sell agreement: (L9) I) Premiums used to fund a buy-sell agreement are not deductible regardless of who (the corporation, shareholders, or third-party) owns the policy II) The general rule that life insurance proceeds are income-tax free may not apply where there has been a transfer for valuable consideration III) The payment of premiums by a corporation that is the beneficiary of a policy on the life of a shareholder will not be taxed to the shareholder as either a constructive dividend or as salary IV) No taxable gift occurs upon the execution of a buy-sell agreement

I, II, III, IV

To be considered life insurance for estate tax purposes all of the following must be present EXCEPT: (L6) I) Have no effect on other legal liabilities II) An insurable interest upon death III) An element of risk shifting IV) An unconditional death benefit

II) An insurable interest upon death

Which of the following must be included in a viable buy-sell agreement? (L9) I) Appointment of board of directors II) Statement identifying restrctions on stock transfers or sales III) Automatic annual increase of life insurance IV) requirement to change company structure

II) Statement identifying restrctions on stock transfers or sales

Which of these is false about ATRA (American Taxpayer Relief Act) (L10): I) ATRA created an estate planning boom in the ultra-high net worth market II) It simplified other types of planning for everyone else III) Was pivital in the overturning of DOMA (Defense of Marriage Act) IV) Created policy review opportunities for trust-owened life insurance

III

For policies that have been transferred and have been in force for some time and have continuing premiums, what is the fair market value for transfer tax purposes? (L6)

Interpolated Terminal Reserve (ITR) + unearned premiums

When a life insurance policy is transferred to an irrevocable trust, a gift (is /is not) made subject to the gift tax. (Q8)

Is subject to gift tax

For irrevocable trusts that own life insurance whendoes the "Transfer within 3 years of death" rule apply? (Q8)

It only applies if the policy has already been previously issued and then put into the trust

Which of the following are EXEMPT from the "Transfer of Value" Rule? I. Policyholder's children II. Policyholder's parents III. Policyholder's co-shareholders (L6)

None of the above

GW buys a $15K LI policy on you one of its key employees. After GW transfers the policy to Devin, another employee, for $5K. Devin pays an additional $3K of premiums into the policy. Say I, the original key employee, passes away and the DB is paid to Devin. Under the "Transfer for Value" Rule, what part of the DB is excluded from taxation? (L6)

Only $8,000 ($5,000 + $3,000) of the death benefit can be excluded from taxation; the remainder is taxed as ordinary income to the employee.

If the death proceeds incur interest income to the beneficiary due to death proceeds being paid at a time later than the insured's death, the interest is taxed to the recipient at what type of rates? (L6)

Ordinary tax rates only

In 2015, same-sex marriage was declared legal in all states by which court(s)?

The Supreme Court

For death proceeds taken in installments, part of each payment to the beneficiaries is taxable. What is the tax free portion called? (L6)

The amount held by the insurer

If you just bought a policy less than a year ago, and you immediately transferred it, what would be the fair market value of the policy for transfer tax purposes? (L6)

The cost of the policy (aka gross premiums paid by the preson transfering it)

What is a Crummey power? (L8)

The window of time that a beneficiary of an irrevocable trust can utilize part or all of the grantor's contribution to the trust and is also the power to make sure that contributions to the ILIT qualifies for the annual exclusion gift

What is the policy owner's investment defined as in equation form? (L6)

Total Premiums paid - any nontaxable distributions received (i.e dividends, unpaid loans, tax-free withdrawals)

True or False: "In 2015, same-sex marriage was declared legal in all states by the Supreme Court." (L10)

True

True or False: "The concept of insurable interest is typically subject to interpretation by state law" (L10)

True

True or False: "The income replacement approach assumes the insurance should be equal to the value of the person's future earnings potential to the surviving family members." (L1)

True

True or False: ATRA raised income tax and reduced certain deductions for high income taxpayers. (L10)

True

True or False: Each transferor has a Generation Skipping Transfer (GST) tax exemption that they may allocate to generation-skipping transfers. (L6)

True

True or False: No income tax deduction for premium payments is allowed if the taxpayer is a beneficiary under the policy. (Q6)

True

True or False: The transfer-for-value rule will not apply if there is no consideration for a transfer of life insurance. (Q6)

True

True or False? "A key provision of ATRA is that the estate tax exemption is portable between spouses. Aka any exemption amount unused at the first spouse's death to be used at the second spouse's death." (L10)

True

True or False? For death proceeds taken in installments, part of each payment to the beneficiaries is taxable. (L6)

True

Which provides more flexibility: Trusts or Settlement Options? (Q8)

Trusts provide a significant amount more flexibility

What does the Premiums plus Earnings less Reasonable Charges (PERC) formula calculate? (L6)

Used to determining the value of a policy for income tax purposes in certain situations

Which of these is NOT a form of Buy-sell agreements? (L9) I) Stock redemption II) Cross-Purchase III) Wait & See IV) Third party buy-out V) Reposition

V

If the contract is not considered life insurance, each year the policyowner will be taxed on the ________________________. (L6)

annual increase in the policy's value

The proceeds of life insurance ( are / are not) always free from ordinary taxes.

are not - In certain situations, the proceeds may be taxable as in the transfer-for-value rule.

Defense of Marriage Act (DOMA) (L10) prohibited the _________________ government from recognizing the legality of same-sex marriage. (L10)

federal

Life insurance proceeds can be removed from a client's estate at a relatively low ____________ cost (L8)

gift tax

The primary tool for getting the most estate tax savings at the least gift tax cost is the __________________________. (L8)

gift tax annual exclusion

Once a grantor transfers assets to a revocable living trust, any income, losses, deductions, or credits become taxable to the ______________. (Q8)

grantor

A transfer of ______________ insurance to an irrevocable trust makes significant estate tax savings possible at minimum gift-tax cost. (Q8)

group term

There (has / has not) always been an organized market for life insurance policies. (L6)

has not - The organized market for life insurance policies is relatively recent.

Payment of life insurance premiums for a policy owned by another (is /is not) considered a completed gift. (Q6)

is

When a life insurance policy is transferred to an irrevocable trust, a gift ( is / is not ) made subject to the gift tax. (L6)

is

The transfer for value rule does not apply to a transfer to a corporation in which the insured is a ________________________.

key employee

What is a "Buy-Sell Agreement"?

legal contract that stipulate how a partner's share of a business may be transferred in the event of the partner's death or departure. Aka a business continuation agreement

NY Regulation 187 (L10)

requires agents to understand the client's goals and situation before making a product recommendation, Address client/product-specific suitability, & must provide in any presentation a fair and accurate representation of products at the time of transaction

All of the following may cause a trust to be treated as a "grantor trust" EXCEPT: (L8)

retention of ability to fund the trust for ongoing premium payments.

All currently issued contracts must contain elements of both risk ____________ and risk _____________ in order to be considered life insurance and be taxed for federal purposes. (L6)

risk shifting; risk distribution

What is the human life concept? (L1)

says that the economic value of a life is teh present value of the future earnings potential of that person. Often used in wrongful death litigation

What is the Annual Exclusion Gift? (L8)

the ability of every individual to be able to give $17K / yr per individual to an unlimited # of individuals

The transfer for value rule may apply to a transfer in which of the following situations?

the sale of a policy by the insured to his son

If you transfered a single premium policy or paid-up policy that has no more premiums due what would be the fair market value of the policy be for transfer tax purposes? (L6)

the single premium which the issuing company would charge currently for a comparable contract of the same amount on the life of a person the insured's age at the time of the transfer (aka replacement value)

ATRA created an estate-planning boom in which market(s)? (L10)

the ultra-high net worth

Under the "Transfer for Value" Rule, what part of the death benefit WON'T be taxed? (L6)

the value of the consideration received + any subsequent premiums paid into the policy by the recipient. Everything else is fully taxable as ordinary income

Why do we care about the Annual Exclusion Gift? (L8)

we want the life premium contributions to an irrevocable trust to qualify for the annual exclusion gift so it doesn't use up their unified credit amount. (the amt an individual can give away during their lifetime or upon their death)