Chapter 4: Taxes, retirement, and other insurance concepts

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What % of a company's employees must take part in a noncontributory group life plan

100%

What is the number of credits required for fully insured status for Social Security disability benefits

40

Who can make a fully deductible contribution to a traditional IRA

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

Which of the following is an eligibility requirement for all social security disability income benefits

Have attained fully insured status

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income

Interest only

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

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

costs of training a replacement

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

The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unavailable 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

A nonqualified annuity plan

Who is a third-party owner

A policyowner who is not the insured

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

Which of the following is true regarding taxation of dividends in participating policies

Dividends are not taxable

Death benefits payable to a beneficiary under a life insurance policy are generally

Not subject to income taxation by the federal government

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

for 31 days

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

What is the primary purpose of a 401(k) plan

retirement

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?

$10,000 no tax consequence

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

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

What does "liquidity" refer to in a life insurance policy

Cash values can be borrowed at any time

In a direct rollover, how is the money transferred from one pan to a new one

From trustee to trustee

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

Fully insured

Life insurance death proceeds are

Generally not taxed as income

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

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

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

The policyowner of the life insurance policy

Which of the following is NOT true of life settlements

The seller must be terminally ill

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 policyowner

Third-party ownership

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

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

Viator

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

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

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is

Modified endowment contract

What is the official name for the Social Security program

Old Age Survivors Disability Insurance

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

In which of the following instances would the premium be tax deductable

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

All of the following are business uses of life insurance EXCEPT

Funding against company's general financial loss

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

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

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

To create an estate

What is the purpose of the Seven-pay test?

it determines if the insurance policy is a MEC

If a retirement plan or annuity is "qualified," this means

it is approved by the IRS

Traditional IRA contributions are tax deductible based on which of the following

owners income

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

Buy-sell agreement

What is the purpose of key person insurance

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

Social Security was created to provide all of the following benefits EXCEPT

Unemployment income

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 turns age 60 called

Blackout period

All of the following are personal uses of life insurance EXCEPT

Buy-sell agreement

Which of the following would be considered a nonqualified retirement plan

Split-dollar 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

The premiums paid by the employer in a business life insurance policy are

Tax deductible by the employer

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

The owner

All of the following are true of key person insurance EXCEPT

The plan is funded by permanent insurance only

Which of the following is TRUE of a qualified plan

It has a tax benefit for both employer and employee.

Who is the owner and who is the beneficiary on a key person life insurance policy

The employer is the owner and beneficiary

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

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

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

Withdrawals are not taxable

Which of the following is NOT an example of a business use of life insurance

Workers compensation


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