Chapter 4 Life Insurance

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

Viator

The insured who has a terminal illness.

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

40

Gross Income

A person's income before taxes or other deductions

Tax Deductible

A reduction of taxable income, resulting in lower tax liability.

Nonprofit Organization

An organization that uses its surplus to fulfill its purpose instead of distributing the surplus to its owners or members.

Pretax Contribution

Contribution made before federal and/or state taxes are deducted from earnings.

Surrender

Early termination of a policy by the policy owner.

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

Fully insured

LIFO (Last In, First Out)

Principle applied to asset management in life insurance products, under which it is assumed that the funds paid into the policy last will be paid out first.

FIFO (First In, First Out)

Principle under which it is assumed that the funds paid into the policy first will be paid out first.

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

Retirement

Earned Income

Salary, wages, or commissions; but not income from investments, unemployment benefits, and similar sources of income.

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

All of the following are personal uses of life insurance EXCEPT

Buy-sell agreement

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

Buy-sell agreement

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

Keogh plan

Policy Endowment

Policy's maturity date

Taxable

Subject to taxation, payable to state and federal government.

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

The owner

Tax Deferred

Taxes on investments or gains (such as interest or dividends) are paid at a future date instead of in the period in which they are incurred tax.

Which of the following is an example of liquidation in a life insurance contract?

The cash value available to the policy owner.

Vesting

The right of a participant in a retirement plan to retain part or all of the benefits.

Which of the following is NOT true of life settlements?

The seller must be terminally ill.

How are contributions to a tax-sheltered annuity treated with regards to taxation?

They are not included as income for the employee, but are taxable upon distribution.

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

To create an estate

What is the purpose of key person insurance?

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

Rollover

Withdrawal of the money from one qualified plan and placing it into another plan.

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

Withdrawals are not taxable.