Chapter 4: Retirement and Other Insurance Concepts

The advantage of qualified plans to employers is A. Taxable contributions. B. Tax-deductible contributions. C. Tax-free earnings. D. No lump-sum payments.

B. Tax-deductible contributions.

Which of the following is NOT true regarding a nonqualified retirement plan? A. Contributions are not currently tax deductible. B. It can discriminate in benefits and selecting participants. C. Earnings grow tax deferred. D. It needs IRS approval.

D. It needs IRS approval.

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? A. $7,000 B. $3,000 C. $13,000 D. $10,000

B. $3,000

To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters? A. 4 credits B. 6 credits C. 10 credits D. 40 credits

B. 6 credits

The minimum number of credits required for partially insured status for Social Security disability benefits is A. 4 credits. B. 6 credits. C. 10 credits. D. 40 credits.

B. 6 credits.

If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is A. Correctly insured. B. Permanently insured. C. Fully insured. D. Partially insured.

C. Fully insured.

Who can make a fully deductible contribution to a traditional IRA? A. Anybody; all IRA contributions are fully deductible regardless of income level B. Someone making contributions to an educational IRA C. A person whose contributions are funded by a return on investment D. An individual not covered by an employer-sponsored plan who has earned income

D. An individual not covered by an employer-sponsored plan who has earned income

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? A. Mortality rate B. Risk exposure C. Morbidity D. Life expectancy

D. Life expectancy

If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is A. Fully insured. B. Partially insured. C. Correctly insured. D. Permanently insured.

A. Fully insured.

All of the following statements concerning an employer sponsored nonqualified retirement plan are true EXCEPT A. The employer can receive a current tax deduction for any contributions made to the plan. B. The plan is a legal method of accumulating money for retirement needs. C. The plan can discriminate as to who may participate. D. The plan is not approved for favorable tax treatment by the IRS.

A. The employer can receive a current tax deduction for any contributions made to the plan.

In a life settlement contract, whom does the life settlement broker represent? A. The owner B. The insurer C. The beneficiary D. The life settlement intermediary

A. The owner

An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits? A. The entire living benefit is considered taxable income. B. A portion of the benefit up to a limit is tax free; the rest is taxable income. C. Principal is tax free, but interest is taxed. D. The entire benefit will be received tax free.

B. A portion of the benefit up to a limit is tax free; the rest is taxable income.

Which of the following is the best reason to purchase life insurance rather than an annuity? A. To liquidate a sum of money over a lifetime B. To create an estate C. To liquidate a sum of money over a period of years D. To create regular income payments

B. To create an estate

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? A. Coverage cannot be converted when an individual leaves the group. B. Premiums are determined by age, occupation, and individual underwriting. C. 100% participation of members is required in noncontributory plans. D. Each member covered receives a policy.

C. 100% participation of members is required in noncontributory plans.

Who is a third-party owner? A. An employee in a group policy B. An irrevocable beneficiary C. A policyowner who is not the insured D. An insurer who issues a policy for two people

C. A policyowner who is not the 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 A. Nonforfeiture option. B. Rollover. C. Settlement option. D. Nontaxable exchange.

C. Settlement option.

An IRA purchased by a small employer to cover employees is known as a A. Defined contribution plan. B. 403(b) plan. C. Simplified Employee Pension plan. D. 401(k) plan.

C. Simplified Employee Pension plan.

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? A. Company is the owner, but the executive pays the premium. B. Board of directors is the owner, and the board of directors pays the premium. C. Company is the owner, and the company pays the premium. D. Executive is the owner, and the executive pays the premium.

D. Executive is the owner, and the executive pays the premium.

All of the following are business uses of life insurance EXCEPT A. Compensating executives. B. Funding against financial loss caused by the death of a key employee. C. Funding business continuation agreements. D. Funding against company's general financial loss.

D. Funding against company's general financial loss.

All of the following would be different between qualified and nonqualified retirement plans EXCEPT A. Taxation on accumulation B. Taxation of withdrawals C. Taxation of contributions D. IRS approval requirements

A. Taxation on accumulation

Death benefits payable to a beneficiary under a life insurance policy are generally A. Subject to income taxation by the Federal Government. B. Exempt from income taxation if under $10,000. C. Exempt from income taxation if over $10,000. D. Not subject to income taxation by the Federal Government.

D. Not subject to income taxation by the Federal Government.

Traditional IRA contributions are tax deductible based on which of the following? A. How long the plan has been in force B. Owner's age C. IRA limit D. Owner's income

D. Owner's income

Which of the following is NOT true of life settlements? A. They could be used for key person insurance. B. They could be sold for an amount greater than the current cash value. C. They involve insurance policies with large face amounts. D. The seller must be terminally ill.

D. The seller must be terminally ill.

What is the official name for the Social Security program? A. Old Age Survivors Disability Insurance B. Social Insurance Program C. Defined Benefit Retirement Insurance D. Qualified Pension Plan

A. Old Age Survivors Disability Insurance

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a A. Settlement option. B. Nontaxable exchange. C. Nonforfeiture option. D. Rollover.

A. Settlement option.

Which of the following would be considered a nonqualified retirement plan? A. Split-dollar plan B. 401(k) C. Keogh plan D. Roth IRA

A. Split-dollar plan

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT A. The policy is owned by the company. B. Any type of insurance policy may be used. C. The employer pays a bonus to a selected employee to fund the policy. D. It is considered a nonqualified employee benefit.

A. The policy is owned by the company.

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

C. The president and employee of a family corporation.

Which of the following is the required number of participants in a contributory group plan? A. 75% B. 100% C. 25% D. 50%

A. 75%

Which type of retirement account does not require the owner to start taking distributions at age 73? A. Standard IRA B. Traditional IRA C. Roth IRA D. Nonqualified IRA

C. Roth IRA

Which of the following is NOT an example of a business use of Life Insurance? A. Buy-sell Funding B. Executive Bonuses C. Key Person D. Workers Compensation

D. Workers Compensation

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 A. Section 457 Deferred Compensation Plan. B. 403(b) plan. C. 401(k) plan. D. HR-10 (Keogh Plan).

D. HR-10 (Keogh Plan).

Which of the following is NOT true regarding policy loans? A. Policy loans can be repaid at death. B. An insurer can charge interest on outstanding policy loans. C. A policy loan may be repaid after the policy is surrendered. D. Money borrowed from the cash value is taxable.

D. Money borrowed from the cash value is taxable.

All of the following would be different between qualified and nonqualified retirement plans EXCEPT A. Taxation of withdrawals B. Taxation of contributions C. IRS approval requirements D. Taxation on accumulation

D. Taxation on accumulation

All of the following statements are true regarding tax-qualified annuities EXCEPT A. Withdrawals are taxed. B. Employer contributions are not tax deductible. C. Annuity earnings are tax deferred. D. They must be approved by the IRS.

B. Employer contributions are not tax deductible.

SIMPLE Plans require all of the following EXCEPT A. No more than 100 employees. B. Employees must receive a minimum of $5,000 in annual compensation. C. At least 1,000 employees. D. No other qualified plan can be used.

C. At least 1,000 employees.

All of the following are requirements of eligibility for Social Security disability income benefits EXCEPT A. Fully insured status. B. Waiting period of 5 months. C. Being age 65. D. Inability to perform any gainful work.

C. Being age 65.

All of the following are personal uses of life insurance EXCEPT A. Buy-sell agreement. B. Survivor protection. C. Estate creation. D. Cash accumulation.

A. Buy-sell agreement.

Which type of retirement account does not require the owner to start taking distributions at age 73? A. Roth IRA B. Nonqualified IRA C. Standard IRA D. Traditional IRA

A. Roth IRA

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.

A. The employees receive individual policies.

All of the following are true of key person insurance EXCEPT A. The key employee is the insured. B. The plan is funded by permanent insurance only. C. There is no limitation on the number of key employee plans in force at any one time. D. The employer is the owner, payor and beneficiary of the policy.

B. The plan is funded by permanent insurance only.

What is the primary purpose of a 401(k) plan? A. To receive dividends over a certain period B. Life insurance distribution C. Retirement D. Education funds

C. Retirement

Which of the following is NOT true regarding policy loans? A. An insurer can charge interest on outstanding policy loans. B. A policy loan may be repaid after the policy is surrendered. C. Money borrowed from the cash value is taxable. D. Policy loans can be repaid at death.

C. Money borrowed from the cash value is taxable.

All of the following employees may use a 403(b) plan for their retirement EXCEPT A. The vice president of a charitable organization. B. The CEO of a private corporation. C. A school bus driver. D. A part-time classroom aide.

B. The CEO of a private corporation.

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? A. $50,000 B. $18,000 C. $15,000 D. $3,000

$3,000

Which of the following is TRUE of a qualified plan? A. It may allow unlimited contributions. B. It has a tax benefit for both employer and employee. C. It does not need to have a vesting schedule. D. It may discriminate in favor of highly paid employees.

B. It has a tax benefit for both employer and employee.

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? A. Morbidity B. Life expectancy C. Mortality rate D. Risk exposure

B. Life expectancy

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an A. Nonqualified annuity. B. Modified endowment contract. C. Accelerated benefit policy. D. Endowment.

B. Modified endowment contract.

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? A. Premiums are taxable to the employee. B. Premiums are not tax deductible as a business expense. C. Premiums are tax deductible by the key employee. D. Premiums are tax deductible as a business expense.

B. Premiums are not tax deductible as a business expense.

In which of the following instances would the premium be tax deductible? A. Premiums paid by an employer on the life of a key person B. Premiums paid by an employer on a $30,000 group term life insurance plan for employees C. Premiums paid by an individual on their own life insurance D. Premiums paid by a mother on her son's policy

B. Premiums paid by an employer on a $30,000 group term life

Which of the following is INCORRECT concerning a noncontributory group plan? A. The employer pays 100% of the premiums. B. The employees receive individual policies. C. They help to reduce adverse selection against the insurer. D. They require 100% employee participation.

B. The employees receive individual policies.

Which of the following best defines the "owner" as it pertains to life settlement contracts? A. The insurance provider B. The policyowner of the life insurance policy C. A financial entity that sponsors the transaction D. A fiduciary for the contract

B. The policyowner of the life insurance policy

What is the official name for the Social Security program? A. Defined Benefit Retirement Insurance B. Qualified Pension Plan C. Old Age Survivors Disability Insurance D. Social Insurance Program

C. Old Age Survivors Disability Insurance

Which of the following statements concerning buy-sell agreements is true? A. Premiums paid are deductible as a business expense. B. Benefits received are considered income taxable. C. Buy-sell agreements pay in the event of a medical emergency. D. Buy-sell agreements are normally funded with a life insurance policy.

D. Buy-sell agreements are normally funded with a life insurance policy.

All of the following are general requirements of a qualified plan EXCEPT A. The plan must be communicated to all employees. B. The plan must be for the exclusive benefits of the employees and their beneficiaries. C. The plan must be permanent, written and legally binding. D. The plan must provide an offset for social security benefits.

D. The plan must provide an offset for social security benefits.