Taxes, Retirement, and Other Insurance Concepts

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

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 is INCORRECT concerning a noncontributory group plan? a. The employees receive individual policies b. They help to reduce adverse selection against the insurer c. They require 100% employee participation d. The employer pays 100% of the premiums

The employees receive individual policies

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 b. The premium for individual coverage will be based upon the insured's attained age c. The insured may choose to convert to term to permanent individual coverage d. The insured would not need to prove insurability for a conversion policy

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

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

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

From trustee to trustee

In life insurance polices, cash value increases

Grow tax deferred

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 Modified Endowment Contract. 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 1/2

What is the main purpose of the Seven-pay Test?

It determines if the insurance policy is a MEC

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

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

fully insured

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

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

If a $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

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

31 days

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 is the official name for the Social Security program?

Old Age Survivors Disability Insurance

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

Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT?

SEPs are suitable for large companies

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 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

What is the purpose of key person insurance?

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

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 benefits are available under Social Security EXCEPT a. Disability benefits b. Death benefits c. Welfare benefits d. Old-age and retirement benefits

Welfare benefits

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

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

40

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

6 credits

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

Keogh

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

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? 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 who works 400 hours per year

The advantage of qualified plans to employers is

Tax-deductible contributions

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 would be eligible to establish a Keogh retirement plan EXCEPT a. A sole proprietor of a service station who employs four employees b. A sole proprietor of film development store with no employees c. A hair dresser who operates her business at her house d. The president and employee of a family corporation

The president and employee of a family corporation

Which of the following employees insured under a group life plan would be allowed to convert to indivdiual insurance of the same coverage once the plan is terminated?

Those who have been insured under the plan for at least 5 years

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 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 i

A nonqualified annuity plan

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

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

To create an estate

Which of the following statements regarding the taxation of Modified Contracts is FALSE? a. Accumulations are tax deferred b. Withdrawals are not taxable c. Distributions before age 59 1/2 incur a 10% penalty on policy gains d. policy loans are taxable distributions

Withdrawals are not taxable

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

Modified endowment contract

An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?

A portion of the benefit up tp a limit is tax free; the rest is taxable income

If a company has a Simplified Employee Pension plan, what type of plan is it?

A qualified plan for a small business

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

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

In a single employer group plan, what is the name of the policy issued to the employer?

Master contract

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