Insurance Test Prep
Who may contribute to an HR-10 plan?
A self-employed individual
Form of payment contributions to which traditional IRAs must be made.
Cash or cash equivalents
According to the taxation rules of life insurance policies, how are cash value increases taxed?
Cash value growth is tax deferred
Type of policy that issues certificates of insurance to the insureds.
Group Policy
Characteristics of group that underwriters will consider before issuing a group life policy.
Group's purpose, size, financial strength and turnover
What qualified plan is suitable for the self-employed?
HR-10 or Keogh
Examples of qualified plans
IRA, 401(k), HR10(Keogh), SEP, SIMPLE
An individual or entity that is not an insured under the contract
Third Party Owner
Group Policy
Type of policy that is typically issued without proof of insurability to the insured.
For a retirement plan to be qualified, must be designed for " " benefit.
employee
Availability of cash value.
Liquidity
Personal Uses of Life Insurance
-Survivor protection -Estate creation -Liquidity -Estate conservation -Cash accumulation
penalty for excess IRA contributions
6%
Viatical Settlement
An arrangement that allows someone living with a life threatening condition to sell their existing life insurance policy and use the proceeds when and where they are most needed, before death.
Group life insurance policies are written as what type of insurance?
Annually Renewable Term
General taxation rule for death benefits payable to the beneficiary of a life policy.
Death benefits are not generally subject to income taxes.
Purpose of 7 Pay Test
Determine if a policy is MEC.
What is required to qualify an individual to contribute to a traditional IRA?
Earned Income
Qualifies for tax-sheltered annuities, 403(b) plans.
Employees of non-profit organizations under section 501(c)(3) and employees of public school systems.
Not taxed as income to employees
Employer contributions made to a qualified plan
Life insurance proceeds may be used to pay state inheritance taxes and federal estate taxes so that it is not necessary for the beneficiaries to sell off the assets.
Estate Conservation
What is the main advantage of converting from group life insurance to individual coverage?
Evidence of insurability is not required
When are life insurance policy proceeds included in the insured's taxable estate?
Incident of ownership at time of death.
If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion, if any, will be taxed?
Interest only
Overfunded contract.
Modified Endowment Contract (MEC)
SIMPLE plans are available to groups of how many employees?
No more than 100
Why are dividends in life insurance policies not taxable?
Not considered income for tax purposes, return of unused premium.
Upon surrender of a life policy, what portion of cash value will be taxed?
Only the portion in excess of the premium paid.
Primary purpose of 401(k)
Provide retirement income
Three types of social security benefits.
Retirement, disability and survivors
Lump Sum Benefits
Tax-free!
Who owns a group life insurance contract?
The employer (also known as the sponsor of the group)
What need's to be considered when planning for survivor protection in life insurance.
The insured's current assets, liabilities and survivor's needs.
If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?
Whole Life
Plan has favorable tax treatment.
qualified retirement plan