Ch.4: Retirement and other Insurance Concepts

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what are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2

10% penalty

what are the personal uses of life insurance

Survivor protection, estate creation and conservation, cash accumulation and liquidity

Group life insurance policies are written as what type of insurance?

annually renewable term

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 mean in a life insurance policy?

availability of cash value

life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate, what is this called

estate conservation

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

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

interest only

which of the following is NOT true regarding a non qualified retirement plan

it needs IRS approval

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

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

any form life insurance

which of the following would describe a legal document which would dictate who can buy a decreased partner's share of a business and for what amount

buy-sell agreement

what is the general taxation rule for death benefits payable to a the beneficiary of a life insurance policy

death benefits are generally not subject to income taxes

what is required to qualify an individual to contribute to a traditional IRA

earned income

For a retirement plan to be qualified, it must be designed for whose benefit?

employee

for a retirement plan to qualified, it must be designed for the benefit of

employees

who qualifies for tax-sheltered annuities or 403(b) plans

employees of nonprofit organizations under section 501(c)(3) and employees of public school systems

what is the main advantage of converting from group life insurance to individual coverage

evidence of insurability is not required

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

the policy owner of the life insurance policy

what is the penalty for excessive contributions to a traditional IRA

6%

which of the following is the required number of participants in a contributory group plan

75%

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

Provide retirement income

all of the following are personal uses of life insurance except

buy-sell agreeement

According to the taxation rules of life insurance policies, how are cash value increases taxed?

cash value growth is tax deffered

SIMPLE plans are available to groups of how many employees?

no more than 100

When planning for survivor protection in life insurance, what needs to be considered?

the insured's current assts, liabilities, and survivor's needs

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

the owner

If a retirement plan is 'qualified', what does that mean?

the plan has favorable tax treatment

social security was created to provide all of the following except

unemployment income

If $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

what percentage of a company's employees must take part in a noncontributory group life plan

100%

Who would be considered a third-party owner?

An individual or an entity who is not the insured

What qualified plan is suitable for the self-employed?

HR-10 or Keogh

what are some examples of qualified plans

IRA, 401(k), HR10 (Keogh), SEP, SIMPLE

The advantage of qualified plans to employers is

Tax-deductible contributions

who owns a group life insurance contract

The employer (also known as the sponsor of the group)

When would life insurance policy proceeds be included in the insured's taxable estate?

when there is an incident of ownership at the time of death

If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?

whole life

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

costs of training a replacement

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

Who may contribute to an HR-10 plan?

A self-employed individual

what type of policy is typically issued without proof of insurability from the insured

group policy

what type of policy issue certificates of insurance to the insureds

group policy

what are the characteristics of the group that underwriters will consider before issuing a group life policy

group's purpose, size, financial strength and turnover

in life insurance policies, cash value increases

grow tax deferred

Why are dividends in life insurance policies not taxable?

dividends are not considered income for tax purposes, they are a return of unused premium

In what form of payment must the contributions to a traditional IRA be made?

in cash (or cash equivalents)

which of the following terms means result of calculation based on the average number of months the insured is projected to live due to medical history and mortality facotrs

life expectancy

which of the following statement is TRUE concerning whole life insurance

lump-sum death benefit are not taxable

If a life insurance policy develops cash value faster than a 7 pay whole life contract, it is?

modified endowment contract

Is the death benefit of a life insurance policy taxed to the beneficiary if it's received as a lump sum?

no lump sum benefits are received tax free

In qualified plans, are employer contributions taxed as income to the employees?

no, employer contributions are not taxed as income to the employees

Upon surrender of a life insurance policy, what portion of the cash value will be taxed?

only the portion in excess of the premium paid

all of the following are characteristics of group life insurance except

premiums are determined by age, sex, and occupation of each individual certificate holder

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

what are the three types of social security benefits

retirement, disability, survivors

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

what is the main purpose of the 7-pay test

To determine if a life insurance policy is a Modified Endowment Contract

what is the purpose of key person insurance

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

what is the name for an overfunded life insurance policy

a modified endowment contract (MEC)


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