CHapter4 Quiz: Primerica Missed Qz Quest.
Q: All of following statements concerning use of life insurance as an Executive Bonus are correct EXCEPT:
A: the policy is owned by the company
Q: which of following is NOT true of life settlements?
A: the seller must be terminally ill;
Q: which of following is best reason to purchase life insurance rather than annuities?
A: to create an estate
Q: What is purpose of key person insurance?
A: to lessen risk of financial loss b/c of death of key employee
Q: For a retirement plan to be qualified, it must be designed for whose benefit?
Employees
# of required eligible employees to be included in a noncontributory plan?
100%
Q: Which of following is required # of participants in a contributory group plan?
A: 75%
Characteristics of Executive Bonuses:
-employee has full rights to policy, -since employer treatment premium payment as bonus amount is tax deductible to employer & income taxable to employee; -is assumed if employee not willing to accept conditions, employer not provide benefit; -are not subject to plan limits established by IRS for qualified plans, so considered a nonqualified benefit plan
True things about federal tax advantages of a qualified plan?
-employer contributions are tax deductible as ordinary biz; -Funds accumulate on a tax-deferred basis; -employee & employer contributions not counted as income to employee for income tax purposes
All of following statements concerning use of life insurance as an Executive Bonus are correct?
-employer pays a bonus to a selected employee to fund policy; -it is considered a nonqualified employee benefit; -any type of insurance policy may be used.
Know This! When converting from grp life to individ life insurance...?
-evidence of insurability is not required
General rule for premiums paid for life insurance?
-not tax deductible, Exception= when an employer buys group term life insurance for his employees since it is considered a business expense
Dividend are
-return of unused premiums, -not considered income for tax purposes; -dividends left w/ insurer to accumulate interest, interest earned is subject to taxation as ordinary income each year interest is earned- even if not paid to policyowner
Life settlements?
-unlike viatical settlements, seller does not need to be terminally ill; -usually involve policies w/ face amt of $250K or more; -"Key-person" coverage; -Corp owned policies, or policies representing excess coverage no longer needed; & -could be sold for amt greater than current cash value
# of required of required eligible employees to be included?
75%
A qualified plan
= approved by the IRS, which then gives both employer & employee benefits in deductibility of contributions & tax deferral of growth.
Executive bonus def?
=an arrangement where employer offers to give employee a wage in crase in amount of premium on a new life insurance policy on employee
LIfe expectancy def?
=an important concept in life settlement contracts; -refers to a calculation based on average # months insured is projected to live d/t medical history & mortality factors; -an arithmetic mean
Q: In order to qualify for conversion from a grp life policy that has been terminated to individ policy of same coverage, a person must have been insured under the group plan for how many years?
A: 5 Note: if master contract is terminated, every individ who has been on plan for at leat 5yr will be allows to convert to individ insurance of same coverage
Q: Which of following terms is used to name the nontaxed return of unused premiums?
A: Dividend
Q: Which of following is an eligibility requirement for all Social Security Disability Income benefits?
A: Have attained fully insured status
Q: which of following terms means a result of calculation based on after # of months insured os projected to live d/t medical history & mortality factors?
A: Life expectancy
Q: In which of following instances would premium be tax deductible?
A: Premiums paid by an employer on a $30,000 group term life insurance plan for employees
Q: Premiums paid by employer in biz life insurance policy are
A: Tax deductible by employer
Q: Which of following is true re: taxation of accelerated benefits under a life insurance policy?
A: They are tax free to terminally ill insured Note: with chronically ill accelerated benefits paid to insured tax free up to a limit.
Q: All of following are TRUE of federal tax advantages of a qualified plan EXCEPT:
A: at distribution, all amounts received by employee are tax free; Note: funds in a qualified plan accumulate on a tax-deferred basis; however, at distribution any amt recv'd by employee treated as ordinary income for tax purposes
Q: in grp life policies, a certificate of insurance is given to
A: each insured person Note: policyholder hold the rights/privileges of grp policy
Q: Which of following is TRUE of a qualified plan?
A: it has a tax benefit for both employer & employee
