Texas Life and Health: Taxes, Retirement, and Other Insurance Concepts

In life insurance policies, cash value increases

grow tax deferred

What is the name of the insured who enters into a viatical settlement?

viator

Which of the following is an example of liquidity in a life insurance contract?

The cash value available to the policyowner

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?

The insured may choose to convert to term or permanent individual coverage

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual poicy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen?

The insurer will pay the full death benefit from the group policy to the beneficiary

In a life settlement contract, whom does the life settlement broker represent?

The owner

All of the following are general requirements of a qualified plan EXCEPT

The plan must provide an offset for social security benefits

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

The policy is owned by the company

All of the following statements concerning the use of life insurance as an Executive bonus are correct EXCEPT

The policy is owned by the company

Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT?

100% participation of members is required in noncontributory plans

Who can make a fully deductible contribution to a traditional IRA?

An individual not covered by an employer-sponsored plan who has earned income.

All of the following are examples of third-party ownership of a life insurance policy EXCEPT

An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan

Employer contributions made to a qualified plan

Are subject to vesting requirements

All of the following are TRUE of the federal tax advantages of a qualified plan EXFCEPT

At distribution, all amounts received by the employee are tax free

Social Security was created to protect against all of the following EXCEPT

Bad investment choices

All of the following are personal uses of life insurance EXCEPT

Buy-Sell Agreements - personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity.

A life insurance policy used to fund an agreement that contractually establishes the intent of someone to purchase a business upon the insured business owner's death is a

Buy-sell agreement

A tax-sheltered annuity is a special tax-favored retirement plan available to

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

A key person insurance policy can pay for which of the following?

Costs of training a replacement

Which of the following terms is used to name the non taxed return of unused premiums?

Dividend - not considered to be income for tax purposes, since they are the return of unused premiums.

When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n)

Executive bonus

All of the following are business uses of life insurance EXCEPT

Funding against general company financial loss

What is the official name for the Social Security program?

Old Age Survicors Disability Insurance

All of the following are chracteristics of group life insurance EXCEPT

Premiums are determined by the age, sex, and occupation of each individual certificate holder

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?

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

Which of the following would be considered a nonqualified retirement plan?

Split-dollar plan

All of the following would be different between qualified and non qualified retirement plans EXCEPT

Taxation and accumulation - are deferred in both types of plans.

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?

The Executive is the owner and the executive pays the premium - the executive bas the policy and pays the premium and the employer reimburses the executive for costs.

Which of the following is NOT true of life settlements?

The seller must be terminally ill.

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated?

Those who have been insured under the plan for at least 5 years

Which of the following is the best reason to purchase life insurance rather than annuities?

To create an estate

Which of the following types of insurance policies would perform the function of cash accumulation?

Whole Life

An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the mployee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover?

$8,000, 60 days - generally, IRA rollovers must be completed within 60 days from the time the money is taken out of the first plan. If the distribution from the first plan is paid directly to the participant, 20% of the distribution must be withheld by the payor

To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarter?

6 credits

how are contributions to a tax-sheltered annuity treated with regards to taxation?

The are not included as income for the employee, but are taxable upon distribution

Which of the following describes the tax advantage of a qualified retirement plan?

The earnings in the plan accumulate tax deferred

Which of the following is INCORRECT concerning a noncontributory group plan?

The employees receive individual policies

All of the following statements concerning an employer sponsored nonqualified retirement plan are true EXCEPT

The employer can receive a current tax deduction for any contributions made to the plan

Who is a third-party owner?

A policyowner who is not the insured

a corporation is the owner and benficiary of the key person life policy. If the corporation collects the policy benefit, then

The benefit is received tax free

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?

Viatical settlement - allows an insured with 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.

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?

Withdrawls are not taxable

Which of the following is NOT an example of a business use of Life Insurance

Workers compensation

When an employee terminates coverage under a group insurance policy, coverage continues in force

for 31 days

Life insurance death proceeds are

generally not taxed as income

If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is

Fully Insured - A worker is fully insured under Social Security if the worker has accumulated the required number of credits based on his/her age

Which of the following is an eligibility requirement for all Social Security Disability Income benefits?

Have attained fully insured status

What is the main purpose of the Seven-pay Test?

It determines if the insurance policy is a MEC

Which of the following is TRUE of a qualified plan?

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

In which of the following instances would the premium be tax deductible?

Premiums paid by an employer on a $30,000 group term life insurance plan for employees

An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain individual policy?

She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan.

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as

Survivor protection

Which of the following best defines the "owner" as it pertains to life settlement contracts?

The policyowner of the life insurance policy