chapter 4 life insurance test
Employer contributions made to a qualified plan
Are subject to vesting requirements
All of the following are requirements of eligibility for social security disability income benefits EXCEPT A) fully insured status B) waiting period of 5 months C) being age 65 D) inability to perform any gainful work
being age 65
In terms of Social Security, what is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse may receive retirement benefits?
blackout period
Social security benefits are available for a surviving spouse until the youngest child reaches age 16. Benefits are again available for the spouse after reaching age 60. what is the time period called during which the surviving spouse does not receive benefits?
blackout period
Which of the following is an eligibility requirement for all social security disability income benefits?
have attained fulled insured status
Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy?
the employer is the owner and beneficiary
All of the following benefits are available under social security EXCEPT A) disability benefits B) death benefits C) welfare benefits D) old-age and retirement benefits
welfare benefits
Which of the following types of insurance policies would perform the function of cash accumulation?
whole life
if $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for 10 years, which of the following would be taxable annually?
$3,000
to convert from a group policy to an individual policy, how long does the employee have to convert the plan over?
31 days
What is the number of credits required for fully insured status for social security disability benefits?
40
Who is a third-party owner?
A policyowner who is not the insured
Social security was created to protect against all of the following EXCEPT A) premature death B) disability C) bad investment choices D) sickness in old age
Bad investment choices
What is the main purpose of the seven-pay test?
It determines if the insurance policy is a MEC
Which of the following best defines the "owner" as it pertains to life settlement contracts?
The policyowner of the life insurance policy
If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is...
fully insured
in group life policies, a certificate of insurance is given to?
each insured person
in life insurance policies, cash value increases
Grow tax deferred.
Which of the following is NOT true of life settlements? A) they involve insurance policies with large face amounts B) the seller must be terminally ill C) they could be used for a key person coverage D) they can be sold for an amount greater than the cash value
The seller must be terminally ill
Under SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings?
They are tax deferred until withdrawn
What is the purpose of key person insurance?
To lessen the risk of financial loss because of the death of a key employee
When the premiums for a group insurance are shared between the employer and employees, the plan is referred to as a __________
contributory plan
Which of the following applicants would NOT qualify for a Keogh plan A) someone who is over 25 years of age B) someone who works for a self-employed individual C) someone who works 400 hours per year D) someone who has been employed for more than 12 months
someone ho works 400 hours per year
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
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
All of the following are personal uses of life insurance- EXCEPT? A) survivor protection B) estate creation C) cash accumulation D) Buy-sell agreement
Buy-sell agreement
2 attorneys at law and 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 modified endowment contract (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 if he is younger than 59.5 years of age
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
All of the following statements are true regarding tax-qualified annuities EXCEPT A) they must be approved by the IRS B) withdrawals are taxed C) employer contributions are not tax deductible D) annuity earnings are tax differed
employer contributions are not tax deductible
When an employee terminates coverage under a group insurance policy, the coverage continues in force
for 31 days
If taken as a lump sum, life insurance proceeds to beneficiaries are passed
free of federal income taxation
In a direct rollover, how is the money transferred from one plan to the new one?
from trustee to trustee
All of the following are business uses of life insurance EXCEPT A) funding against general company financial loss B) compensating executives C) funding against financial loss caused by the death of a key employee D) funding business continuation agreements
funding against general company financial loss
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
An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called?
profit sharing plan
Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policy owner?
third-party ownership
What percentage of a company's employees must take part in a noncontributory group life plan?
100%
Who can make a fully deductible contribution to a traditional IRA?
An individual whos not covered by an employer-sponsored plan who has earned income
A tax sheltered annuity is a special tax-favored retirement plan available to?
Certain groups of employees only
Which of the following statements concerning a simplified employee pension plan( SEP) is INCORRECT? A) SEP's are suitable for large companies B) SEPs allow the employer to make annual tax deductible contributions up to 25% of an employees earned income C) SEPs have a higher tax deductible contribution limit than IRA D) employer contributions are not included in the employees gross income
SEP's are suitable for large companies no, small employer
What is the name of the insured who enters into a viatical settlement?
Viator
Death benefits payable to a beneficiary under a life insurance policy are generally
not subject to income taxation by the federal government
What is the official name for the social security program
old age survivors disability insurance ( OASDI)
**Which of the following is correct concerning the taxation of premiums for a key person life insurance policy?
premiums are not tax deductible as a business expense
An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?
$3,000
Life insurance death proceeds are
Generally not taxed as income
Which of the following statements is TRUE concerning whole life insurance?
Lump-sum death benefits are not taxable
Which of the following is NOT an example of a business use of life insurance? A) workers compensation B) buy-sell funding C) executive bonuses D) key person
Workers compensation
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
Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages?
3%
What is the primary purpose of a 401(k) plan?
retirement
All of the following are examples of third party ownership of a life insurance policy EXCEPT? A) an insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan B) an insured couple purchases a life insurance policy insuring the life of their grandson C) a company purchases a life insurance policy on their manager, who is an important part of the operation D) when an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company
an insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan
If a company has a simplified employee pension plan( SEP), what type of plan is it?
A qualified plan for small business
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 statements regarding the taxation of modified endowment contracts is FALSE? A) accumulations are tax deferred B) withdrawals are not taxable C) distributions before age 59.5 incur a 10% penalty on policy gains D) policy loans are taxable distributions?
withdrawals are not taxable ( any distributions from MEC's are taxable, including withdrawals and policy loans. all of the other statements are true)
The minimum number of credits requires for partially insured status for social security disability benefits is?
6 credits
An individual has been contributing to a retirement account after taxes are taken out of his paycheck. his financial adviser told him that he will be allowed to make contributions after the age of 70.5. the account does not have to pay taxes on the growth of his account. what type of retirement account is it?
Roth IRA
under a contributory plan, what percentage of eligible employees must be included in the plan?
75%
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 employee 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
A key person insurance policy can pay for which of the following?
costs of training a replacement
a direct transfer of an IRA is also called what?
direct rollover
**All of the following would be different between qualified and non-qualified retirement plans EXCEPT A) taxation of contributions B) IRS approval requirements C) Taxation on accumulation D) taxation of withdrawals
Taxation on accumulation it's deferred in both qualified and non-qualified plans
If a retirement plan or annuity is "qualified", this means
it is approved by the IRS
All of the following employees may use a 403(b) plan for their retirement EXCEPT? A) the CEO of a private corporation B) a school bus driver C) a part-time classroom aide D) the vice president of a charitable organization
the CEO of a private corporation
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
SIMPLE Plans require all of the following EXCEPT A) at least 1,000 employees B) no other qualified plan can be used C) no more than 100 employees D) employees must receive a minimum of $5,000 in annual compensation
at least 1,000 employees Must have ~100 employees
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
A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a
cross-purchase plan
When an employer pays all of the premiums, the plan is referred to as a what?
noncontributory plan
All of the following are characteristics of group life insurance EXCEPT? A) premiums are determined by the age, sex and occupation of each individual certificate holder B) amount of coverage is determined according to nondiscriminatory rules C) individuals covered under the policy receive a certificate of insurance D) certificate holders may convert coverage to an individual policy without evidence of insurability
premiums are determined by the age, sex and occupation of each individual certificate holder no, its the entire group, not the individual
An IRA purchased by a small employer to cover employees is known as a
simplified employee pension plan ( SEP)
Which of the following would be considered a nonqualified retirement plan?
split-dollar plan individual annuities, differed compensation plans
Traditional IRA contributions are
tax deductible
A 60-year-old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true?
the amount of the distribution is reduced by the amount of a 20% withholding tax
All of the following statements concerning an employer sponsored non qualified retirement plan are true EXCEPT A) the plan can discriminate as to who may participate B) the plan is not approved for favorable tax treatment C) the employer can receive a current tax deduction for any contributions made to the plan D) the plan is a legal method of accumulating money for retirement needs
the employer can receive a current tax deduction for any contributions made to the plan
An employee quits his job on may 15 and doesn't convert his group 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 policy to the beneficiary.
Which of the following is an IRS qualified retirement program for the self-employed?
Keogh
Which of the following is NOT true regarding a non-qualified retirement plan? A) it can discriminate in benefits and selecting participants B) earnings grow tax differed C) it needs IRS approval D) contributions are not currently tax deductible
it needs IRS approval
The premiums paid by the employer in a business life insurance policy are
tax deductible by the employer
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
In a single employer group plan, what is the name of the policy issued to the employer?
master contract
All of the following are characteristics of a group life insurance plan EXCEPT A) a minimum number of participants is required in order to underwrite the plan B) the cost of the plan is determined by the average age of the group C) there is requirement to prove insurability on the part of the participants D) the participants receive a certificate of insurance as their proof of insurance
there is requirement to prove insurability on the part of the participants
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
Which of the following is true regarding taxation of accelerated death benefits under a life insurance policy?
they are tax free to terminally ill insured
Who may contribute to an HR-10 plan?
A self-employed individual
What type of insurance is most commonly used for group plans?
annual renewable term
The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unaavailble to lower echelon employees. this plan would be funded with before tax corporate dollars, and it does not meet government approval standards. This annuity plan is subject to:
a non-qualified annuity plan
Which of the following is true regarding taxation of dividends in participating policies?
dividends are not taxable
In a life settlement contract, whom does the life settlement broker represent?
the owner
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
For a retirement plan to be qualified, it must be designed for whose benefit?
employees
Which of the following is TRUE of a qualified plan?
it has a tax benefit for both employer and employee
Which of the following is true of a qualified plan?
it has tax benefits for both employer and employee
Which of the following is NOT true regarding policy loans? A) money is borrowed from the cash value is taxable B) policy loans can be repaid at death C) an insurer can charge interest on outstanding policy loans D) a policy loan may be repaid after the policy is surrendered
money is borrowed from the cash value is taxable ( money borrowed is NOT taxable)
Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings?
they are tax deferred until withdrawn
All of the following are true of key person insurance EXCEPT A) the employer is the owner, payor and beneficiary of the policy B) the key employee is the insured C) the plan is funded by permanent insurance only. D) there is no limitation on the number of key employee plans in force at any one time
the plan is funded by permanent insurance only. ( its funded by any time of life insurance, not just permanent life insurance policies)
Which of the following is the best reason to purchase life insurance rather than annuities?
to create an estate
All of the following statements are true regarding group insurance EXCEPT: A) participants in the policy each receive a policy B) the group sponsor is the policyholder C) participants in a group insurance plan are issued certificates of insurance D) small groups such as labor unions are eligible for group insurance
participants in the policy each receive a policy
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 covert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan
Which of the following is INCORRECT concerning a noncontributory group plan?
the employees receive individual policies
To attain currently insured status under social security, a worker must have earned at least how many credits during the last 13 quarters?
6 credits
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
A 403(b) plan, commonly referred to as a TSA, is available to be used by
teachers and not-for-profit organizations
Which of the following terms is used to name the nontaxed return of unused premiums?
Dividend
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 , no tax consequence
Which of the following instances would the premium be tax deductible?
premiums paid by the employer on a $30,000 group term life insurance plan for employees it would be considered a business expense
If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may
require evidence of insurability
An employee is insured under her employer's group life plan. if she terminates her group coverage, which of the following statements is INCORRECT? A) the insured may convert coverage to an individual policy within 31 days 2) the premium for individual coverage will be based of the insured's attained age C) the insured may choose to convert to term or permanent individual coverage D) the insured would not need to prove insurability for a conversion policy
the insured may choose to convert to term or permanent individual coverage ( It can be converted to individual whole life policy, not term)
All of the following are general requirements of a qualified plan EXCEPT A) the plan must be for the exclusive benefits of the employees and their beneficiaries B) the plan must be permanent, written and legally binding C) the plan must provide an offset for social security benefits D) the plan must be communicated to all employees
the plan must provide an offset for social security benefits must meet general requirements established by the IRS
Which type of retirement account allows contributions to continue beyond age 70.5 and does not force distributions to start at age 70.5
Roth IRA
Which of the following is an IRS qualified retirement program for the self employed?
Keogh or H-10 plan
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
What does "liquidity" refer to in a life insurance policy?
cash values can be borrowed at any time
