retirement and other insurance concepts

third-party owner

legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it. usually in business or for a minor.

tax deferred

taxes on investments or gains (such as interest or dividends) are paid at future date instead of in the period in which they are incurred tax.

what type of policy issues certificates of insurance to the insureds?

group policy

what are the characteristics of the group that underwriters will consider before issuing a group life policy?

group's purpose, size, financial strength and turnover

Nonqualified retirement plan

- contributions NOT tax deductible - No IRS approval needed - ability to discriminate - earnings grow tax deferred. - excess cost basis is TAXED

qualified retirement plan

- contributions currently tax deductible - plan approved by IRS - cannon discriminates - earnings grow tax deferred - all withdrawals taxed

how many does a does a person have to get an individual policy after leaving a group policy?

31 days

what is the number of credits required for fully insured status for social security disability benefits?

40

the minimum number of credits required for partially insured status for social security disability benefits is?

6 credits

What is the excess contribution penalty for IRAs?

6%

what is the penalty for excessive contributions to a traditional IRA?

6%

Buy-Sell Agreement

A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. aka business continuation agreement

Roth IRA

A personal savings plan: contributions are not tax-deductible; earnings are tax-free.

life settlement

Any financial transaction in which the owner of a life insurance policy sells a life insurance policy to a third party for some form of compensation, usually cash.

in a direct transfer, how is money transferred from one retirement plan to a traditional IRA?

From trustee to trustee

what qualified plan is suitable for the self-employed?

HR-10 or Keogh

in qualified plans, are employer contributions taxed as income to the employees?

No

business of life settlement

Refers to any activity relating to the solicitation and sale of a life settlement contract to a third party who has no insurable interest in the insured

who would be considered a third-party owner?

individual or entity who is not the insured

Traditional IRAs and Roth IRAs are for

individuals with earned income

TRUE OR FALSE: qualified plans have tax advantages

True

contributions to qualified plans are limited to

a maximum amount (Established by IRS)

life settlement provider

a person (other than the owner) who enters into a life settlement contract with the owner

life settlement broker

a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract

gross income

a person's income before taxes or other deductions

tax deductible

a reduction of taxable income, resulting in lower tax liability

contributions to a Roth IRA are with

after-tax dollars (Not tax deductible)

vesting

an employee's right to at least a portion of the benefits accrued under an employer pension plan, even if the employee leaves the company before retiring.

Group life insurance policies are written as what type of insurance?

annually renewable term

group insurance is written as

annually renewable term insurance

in what form of payment must the contributions to a traditional IRA be made?

cash

according to taxation rules of life insurance policies, how are cash value increases taxed?

cash value growth is tax deferred.

What does liquidity mean in a life insurance policy?

cash values can be borrowed at any time

pretax contribution

contribution made before federal and/or state taxes are deducted from earnings.

What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?

death benefits are generally not subject to income taxes

why are dividends in life insurance policies not taxable?

dividends are not considered income for tax purposes; they are a return of unused premium.

surrender

early termination of a policy by the policyowner

What is required to qualify an individual to contribute to a traditional IRA?

earned income.

who may contribute to a HR-10 plan?

elf-employed individual

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

employees

life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. what is this called?

estate conservation

What is the main advantage of converting from group life insurance to individual coverage?

evidence of insurability is not required.

nonprofit organization

organization that uses its surplus to fulfill its purpose instead of distributing the surplus to its owners and members.

owner

owner of life policy seeking to enter a life settlement contract

in group insurance, the master contract is for

the employer, and certificates of insurance are for individual insureds.

when planning for survivor protection in life insurance, what needs to be considered?

the insureds current assets, liabilities and survivor needs

if a retirement plan is qualified, what does that mean?

the plan has favorable tax treatment

Viatical Settlement

the sale of a life insurance policy by a terminally ill insured to another party, typically to investors or investor groups, who hope to profit by the insured's early death

what is the main purpose of the 7-pay test?

to determine if a life insurance policy is a modified endowment contract.

what is the purpose of key person insurance?

to lessen the risk of financial loss because of the death of a key employee

cross purchase

when each partner buys a policy on the other

entity purchase

when the partnership buys the policies on the partners

when would life insurance policy proceeds be included in the insureds taxable estate?

when there is an incident of ownership at the time of death

if an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?

whole life

rollover

withdrawal of the money from one qualified plan and placing it in another plan

examples of qualified plans:

IRA, 401(K), HR10 (Keogh, SEP, SIMPLE

what type of policy is typically issued without proof of insurability from the insured?

group policy

LIFO (last in, first out)

principle applied to asset management in life insurance products, under which it is assumed that the funds paid into the policy last will be paid out first

FIFO ((First in, first out)

principle under which it is assumed that the funds paid into the policy first will be paid out first.

Key Person Insurance

protects against the loss of a key employee or key executive by making the business the beneficiary if a key person dies. The business is the owner, premium payor, and beneficiary.

Contributory Plan

- retirement plan funded by contributions from the employer and employee - insurer requires 75% of employees included in plan

contributions to a traditional IRA are with

pre-tax dollars (tax deductible)

upon surrender of a life insurance policy, what portion of the cash value will be taxed?

excess of premium paid

what are the three types of social security benefits?

retirement, disability and survivors

earned income.

salary, wages, or commissions, but not income from investments, unemployment benefits, and similar sources of income

taxable

subject to taxation, payable to state and federal government

what are the personal uses of life insurance?

survivor protection, estate creation and conservation, cash accumulation and liquidity

noncontributory plan

- retirement plan funded entirely by contributions from the employer - 100% of employees included in plan

policy endowment

maturity date