Primerica - UCANPASS - Chapter Taxes, Retirement and Other Insurance Concepts

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

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

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

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

Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose A: HR-10 Keogh Plan B: Section 457 Deferred Compensation Plan C: 403(b) plan D: 401(k) plan

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

All of the following would be different between qualified and non-qualified retirement plans EXCEPT A: Taxation on accumulation B: Taxation of withdrawals C: Taxation of contributions D: IRS approval requirements

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

Which of the following describes the tax advantage of the qualified retirement plan? A: Employer contributions are not taxed when paid out to the employee B: The earnings in the plan accumulate tax deferred C: Distributions prior to age 59 1/2 are tax deductible Employee contributions are deductible as a business expense when the employee receives benefits

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

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

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

What is the name of the insured who enters a viatical settlement a: Viatical broker B: Viator C: Third party D: Contingent

B: Viator Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.

Which of the following is NOT true life settlements? A: They could be sold for an amount greater than the cash value B: They involve insurance policies with large face amounts C: The seller must be terminally ill D: They could be used for a key person coverage

C: The seller must be terminally ill With Life Settlements, unlike with viatical settlements, the seller does not need to be terminally ill. They usually involve life insurance policies with a face amount of $250,000 or more, "key-person" coverage, corporate owned policies, or policies representing excess coverage that is no longer needed, and could be sold for an amount greater than the current cash value.

An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n) A: Keogh Plan B: Roth IRA C: SEP D: 403(b) Plan (TSA)

D: 403(b) Plan (TSA) Under a 403(b) Plan, tax-sheltered annuities may be established for the employees of specified nonprofit charitable, educational, religious and other 501c(3) organizations, including teachers in public schools systems. Such plans generally are not available to other kinds of employees.

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially be able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement: A: Term insurance only B: Permanent insurance only C: Universal life insurance only D: Any form of life insurance

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

All of the following are characteristics of group insurance EXCEPT A: Amount of coverage is determined according to nondiscriminatory rules B: Individuals covered under the policy receive a certificate of insurance C: Certificate holders may convert coverage to an individual policy without evidence of insurability D: Premiums are determined by the age, sex, and occupation of each individual certificate holder

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

An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize? A: Viatical settlement B: Estate liquidation C: Nonpayment of premium D: Change of beneficiary

A: Viatical settlement A viatical statement allows an insured with a life-threatening condition to sell the existing policy in order to receive benefits when they are most needed. Viators typically receive a percentage of the policy's face value from the person who purchases the policy.

The premiums paid by the employer in a business life insurance policy are A: Tax deductible by the employee B: Always taxable to the employee C: Never taxable to the employee D: Tax deductible by the employer

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

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

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

All of the following are general requirements of a qualified plan EXPECT A: The plan must be communicated to all employees B: The plan must be for the exclusive benefits of the employees and their beneficiaries C: The plan must be permanent, written and legally binding D: The plan must provide an offset for social security benefits

D: The plan must provide an offset for social security benefits Plans must meet the general requirements established by IRS.