Ch. 4
An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer?
$10,000, tax on growth only
When the owner of a $250,000 life insurance policy died, the beneficiary decided to leave the proceeds of the policy with the insurance company and selected the Interest Settlement Option. If at the time of withdrawal the interest paid was $11,000, the beneficiary would be required to pay income tax on
$11,000
An insured decides to surrender his $100,00 Whole Life Policy. The premiums paid into the policy added up to $15,00. At the po
$3,000
If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually?
$3,000
What is the number of credits required for fully insured status for Social Security disability benefits?
40
An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n)
403(b) Plan (TSA)
In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?
5
The minimum number of credits required for partially insured status for social security disability benefits is
6 credits
To attain currently insured status under Social Security, a worker must have earned how many credits during the last 13 quarters?
6 credits
Which of the following is required of the number of participants in a contributory group plan?
75%
An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?
A portion of the benefit up to a limit is tax free; the rest is taxable 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
All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT
At distribution, all amounts received by the employee are tax free
SIMPLE plans require all of the following EXCEPT
At least 1,000 employees
If taken as a lump sum, life insurance proceeds to beneficiaries are passed
Free of federal income taxation
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
HR-10 (Keogh Plan)
An insured has a MEC. He wants to withdraw some money in order to pay medical bills. Which of the following is true?
He will have to pay a penalty regardless of his age
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
If a retirement plan or annuity is "qualified" this means
It is approved by the IRS
If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy
It is only taxable if the cash value exceeds the amount paid for premiums
Which of the following is NOT true regarding a nonqualified retirement plan?
It needs IRS approval
An employee is joining a group insurance plan. In order to avoid having to prove insurability, what must the employee do?
Join during the open enrollment period
Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors?
Life expectancy
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/am
MEC
Traditional IRA Contributions are tax deductible based on which of the following?
Owner's income
All of the following are characteristics of group life insurance EXCEPT
Premiums are determined by the age, sex, and occupation of each individual certificate holder
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
Which type of retirement account does not require the owner to start taking distributions at age 73?
Roth IRA
Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT?
SEPs are suitable for large companies
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 an individual policy?
She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan
An IRA purchased by a small employer to cover employees is known as a
Simplified Employee Pension plan
Which of the following applicants would NOT qualify for a Keogh Plan?
Someone who works 400 hours per year
Which of the following is an example of liquidity in a life insurance contract?
The cash value available to the policyowner
Which of the following is INCORRECT concerning a noncontributory group plan?
The employees receive individual policies
An employee is insured under her employers 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
All of the following would be eligible to establish a Keogh retirement plan EXCEPT
The president and employee of a family corporation
All of the following are characteristics of a group life insurance plan EXCEPT
There is a requirement to prove insurability on the part of the participants
Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?
They are tax free to terminally ill insured
Which of the following is the best reason to purchase life insurance rather than an annuity?
To create an estate
What is the purpose of key person insurance?
To lessen the risk of financial loss because of the death of a key employee
Who is a third party owner
a policyowner who is not the insured
who can make a fully deductible contribution to a traditional IRA?
an individual not covered by an employer-sponsored plan who has earned income
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 able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?
any form of life insurance
Employer contributions made to a qualified plan
are subject to vesting requirements
An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his
attained age
All of the following are requirements of eligibility for social security disability income benefits EXCEPT
being age 65
All of the following are personal uses of life insurance EXCEPT
buy-sell agreement
What does "liquidity" refer to in a life insurance policy?
cash values can be borrowed at any time
A tax-sheltered annuity is a special tax-favored retirement plan is available to
certain groups of employees only
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 nontaxed return of unused premiums?
dividend
Which of the following is true regarding taxation of dividends in participating policies?
dividends are not taxable
In group life policies, a certificate of insurance is given to
each insured person
For a retirement plan to be qualified, it must be designed for the benefit of
employees
All of the following statements are true regarding tax-qualified annuities EXCEPT
employer contributions are not tax deductible
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
When an employee terminates coverage under a group insurance policy, coverage continues in force
for 31 days
If an insured worker has earned
fully insured
All of the following are business uses of life insurance EXCEPT
funding against company's general financial loss
Life insurance proceeds are
generally not taxed as income
In life insurance policies, cash value increases
grow tax deferred
Which of the following is an eligibility requirement for all Social Security Disability Income benefits?
having attained fully insured status
When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?
interest only
Which of the following is an IRS qualified retirement program for the self-employed?
keogh plan
Which of the following statements is TRUE concerning whole life insurance?
lump-sum death benefits are not taxable
In a single employer group plan, what is the name of the policy issued to the employer?
master contract
Which of the following is NOT true regarding policy loans?
money borrowed from the cash value is taxable
What is the official name for the social security program?
old age survivors disability insurance
All of the following statements are true regarding group insurance EXCEPT
participants in the policy each receive a policy
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
An employer has sponsored
profit sharing plan
If an employee wants to enter the group outside of open enrollment period, to reduce adverse selection, the insurer may
require evidence of insurability
What is primary purpose of a 401(k) plan?
retirement
Who may contribute to a Keogh (HR-10) plan?
self-employed plumber
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a
settlement option
A producer is helping a married couple determine the financial needs of their children if one or both should die prematurely. This is a personal use of life insurance known as
survivor protection
The premiums paid by the employer in a business life insurance policy are
tax deductible by the employer
The advantage of qualified plans to employers is
tax-deductible contributions
All of the following would be different between qualified and nonqualified retirement plans EXCEPT
taxation on accumulations
A 403(b) plan, commonly referred to as a TSA, is available to be used by
teachers and not-for-profit organizations
All of the following employees may use a 403(b) plan for their retirement EXCEPT
the CEO of a private corporation
A 60-year-old participant in a 401(k) plan takes a dis
the amount of the distribution is reduced by the amount of a 20% withholding tax
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then
the benefit is received tax free
Which of the following statements about group life is correct?
the cost of coverage is based on the ratio of men and women in the group
Which of the following best describes the tax advantage of a qualified retirement plan?
the earnings in a qualified plan accumulate tax deferred
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 the owner and who is the beneficiary on a key person life
the employer is the owner and beneficiary
An employee quits his job on May 15 and doesn't convert his group life policy to an individual policy 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
All of the following are true of key person insurance EXCEPT
the plan is funded by permanent insurance only
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
which of the following is NOT true of life settlements?
the seller must be terminally ill
how are contributions to a tax-sheltered annuity treated with regards to taxation?
they are not included as income for the employee, but are taxable upon distribution
Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings?
they are tax deferred until withdrawn
which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on child where the parent is the policyowner?
third-party ownership
which of the following employees insured under a group life plan would be allowed to convert individual insurance of the same coverage once the plan is terminated?
those who have been insured under the plan for at least 5 years
Social Security was created to provide all of the following benefits EXCEPT
unemployment income
All of the following benefits are available under Social Security EXCEPT
welfare benefits
which of the following is NOT an example of a business use of life insurance
workers compensation
