Life Ins Quiz 9 & 10

Which of the following goals can be achieved by the use of key employee life insurance?

Assure shareholders of a public corporation that the price of the stock will not plummet at the death of a president or other senior executive.

Which of the following features is a characteristic of key employee life insurance?

The corporation pays the premiums on the policy.

Which of the following statements is true regarding the "classic'' split dollar plan?

The employer is allowed an income tax deduction each year equal to the amount of economic benefit included in income by the employee.

Which of the following statements accurately describes one of the characteristics of a Section 162 plan?

at no time does the employer have any incident of ownership in the policy

The disadvantages of using a revocable life insurance trust include all but which of the following?

insurance proceeds would be available to a testamentary trust before they would be available for a revocable trust

The advantages of using a revocable life insurance trust include all but which of the following?

it is less costly and simpler than selecting a settlement option

A Section 162 plan is based on an Internal Revenue Code section that:

permits an employer to deduct amounts paid for premiums on life insurance covering selected employees provided that the amount is charged to the covered employee as a bonus (compensation)

Which of the following circumstances, if true, would make a nonqualified deferred compensation plan inadvisable?

the business is not likely to survive the death, disability or retirement of its key employees

Which of the following accurately describes one of the disadvantages of a Section 162 plan?

the employer has no control over either the employee or the policy through the plan

All of the following statements about the income taxation of an insured death benefit received by a plan participant's beneficiary are accurate EXCEPT:

the entire death benefit received by a plan participant's beneficiary is recovered tax free

For income tax purposes:

the grantor of a revocable life insurance trust generally reports trust income, losses, deductions, and credits if he is trustee

Which of the following is one of the advantages of a pension maximization strategy?

the life insurance policy provides more planning flexibility as compared with a joint and survivor payout

A split dollar life insurance arrangement would be appropriate under all of the following circumstances, EXCEPT:

when the employer wants to be able to provide for the future security of its employees with tax deductible dollars

Mr. Jones' pension pays $3,000 a month under the single life annuity option or $2,550 a month under the joint and 50% survivor annuity option. Mr. and Mrs. Jones elect the joint and 50% survivor annuity. What is the effective "cost'' of the 50% survivor annuity?

$450 per month

Under the insurance feature of the joint & survivor annuity, the pensioner generally has no rights to:

-accelerate benefit payments if a need occurs -choose an alternative or substitute beneficiary -wait to select the type of benefit to be paid all of the above

A "salary continuation" plan involves the employee voluntarily choosing to defer a portion of his future salary or bonus, as a means of deferring taxes.

FALSE

An employer wishing to provide additional benefits to a select group of employees could do so with a qualified defined contribution plan.

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.

False

Life insurance proceeds payable to a revocable trust are not available for the trustee's disposition until the decedent's will has been probated.

False

One of the benefits of placing assets in a revocable trust is that they are protected from the claims of the grantor's creditors during his lifetime.

False

Section 162 plans are usually some form of term insurance.

False

Split dollar life insurance is a specialized type of life insurance designed to meet specific business needs.

False

The employer is taxed on the value of the economic benefit received from the employee's participation in the split-dollar arrangement.

False

The endorsement method of owning life insurance in a split dollar arrangement provides more protection to the employee than does the collateral assignment method of ownership.

False

The larger the business is, the greater the need is for key employee life insurance.

False

The principal requirement in implementing a pension maximization strategy is compliance with ERISA.

False

When life insurance is provided through a qualified plan, the costs resulting from any substandard ratings are taxable income to the insured employee.

False

A Section 162 plan is frequently referred to as an "Executive Bonus" plan.

True

No deduction is permitted to an employer sponsoring a nonqualified deferred compensation plan until income is taxable to the employee.

True

The life insurance products used to fund a qualified plan may provide employees with retirement benefits at more favorable terms than individual contracts.

True

The principle advantage of pension maximization is increased planning flexibility.

True

The rule against perpetuities is a state law restriction designed to limit the period during which a trust can withhold property or its income from outright ownership.

True

Which of the following is true regarding variations on the "classic'' split dollar plan?

Under the Reverse Split Dollar Plan the employee's share of the premium is the amount of the cash value increase in the year with the employer paying the balance.

Corporate Owned Life Insurance (COLI) is an attractive means of financing an employer's obligations under a nonqualified deferred compensation plan for all but one of the following reasons. Which one is inapplicable?

a plan funded with life insurance is exempt from all state and federal regulatory requirements

In order for a participant to avoid current taxation of his benefits under a nonqualified deferred compensation plan, he must not be deemed to have constructive receipt of income under the plan. Constructive receipt can be avoided if certain provisions are included in the design of the plan. Which one of the three following provisions will NOT avoid constructive receipt?

a provision that permits the employee to place his benefits beyond the reach of the employer's creditors if he suspects that the employer is in financial difficulty

The term "pension maximizing'' refers to

a strategy for providing a more attractive overall benefit package for married couples by insuring the participant's life outside the plan

Which of the following types of qualified plans provides the most advantageous treatment of life insurance?

defined benefit plan

Once a grantor transfers assets to a revocable living trust, any income losses, deductions, or credits become taxable to the trust, even if the grantor is the trustee.

false

Three of the following are advantages of fully-insured pension plans (i.e., plans holding only life insurance and annuity contracts that meet certain requirements). Which statement is NOT an advantage of fully insured plans?

fully insured plan cash values are not subject to income tax

For estate tax purposes, life insurance

held by a revocable life insurance trust is includable in the grantor's estate