Chapter 4: Taxes, Retirement, and Other Insurance Concepts

What percentage of a companys employees must take part in a noncontributory group life plan?

100%

Who is a third party owner?

A policyowner who is not the insured

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 statement

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.

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

Which of the following is an IRS qualified retirement program for the self employed?

Keogh

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

The earnings in the plan accumulate tax deferred

All of the following are true of a key insurance;

There is no limitation on the number of key employee plans in force at once, the key employee is the insured, the employer is the owner, payor, and beneficiary of the policy

All of the following are business uses of life insurance except

Funding against the company's general financial loss

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.

What does liquidity refer to in a life insurance policy?

Cash values can be borrowed at any time.

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

Dividend

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

Tax deductible by the employer

All of the following are personal uses of life insurance except:

Buy- sell agreement

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

For 31 days

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

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

From trustee to trustee

In life insurance policies, cash value increases

Grow tax deferred

Which of the following is true of a qualified plan?

It has tax benefit for both the employer and employee.

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

The owner

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

The policy owner of the life insurance

Which of the following is not true of life statements?

The seller must be terminally ill

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

To create an estate

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

Viator

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

It is approved by the IRS

The minimum number of credits required for partially insured status for Social Security disability benefits is

6 credits

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 (SHOULD BE OCCUPATION OF THE ENTIRE GROUP)

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

Whole life

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

Executive is the owner, and the executive pays the premium

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.

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 covert to term or permanent individual coverage (INSURER DECIDES)

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 poilcyowner?

Third party ownership

What is the purpose of key person insurance?

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

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

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

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

Taxation on accumulation

Traditional IRA contributions are:

Tax deductible

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

Costs of training replacement

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

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 an eligibility requirement for all Social Security Disability income benefits?

Have attained fully insured status

If a company has a simplified employee pension plan, what type of plan is it?

A qualified plan for a small business

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 into 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.

Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy?

The employer is the owner and the beneficiary.

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

Which of the following is not an example of business use of life insurance?

Workers compensation

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

Executive policy

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.

Employer contributions made to a qualified plan

Are subject to vesting requirements

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

Modified endowment contract

All of the following statements concerning sponsored non qualified retirement plans are true

The plan is a legal method of accumulating money for retirement needs, can discriminate as to who may participate, not approved for favorable tax treatment by the IRS.

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 used of life insurance known as:

Survivor protection

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