IL CHAPTER 4 - TAXES, RETIREMENT, & OTHER INSURANCE CONCEPTS
What do qualified and nonqualified retirement plans have in common?
Taxation on accumulation
Which of the following is the required number of participants in a noncontributory group plan?
100%
What is the number of credits required for fully insured status for Social Security disability benefits?
40 credits
What is the number of credits required for currently insured status for Social Security disability benefits?
6 credits
Which of the following is the required number of participants in a contributory group plan?
75%
An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. How are the accelerated benefits taxed?
A portion of the benefit up to 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
Who can make a fully deductible contribution to a traditional IRA?
An individual not covered by an employer-sponsored plan who has earned income
What are some examples of a business use of Life Insurance?
Buy-sell Funding Executive Bonuses Key Person
Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?
Distributions before age 59 1/2 incur a 10% penalty on policy gains. Policy loans are taxable distributions. Accumulations are tax deferred. Withdrawals are taxable
What is the term that is used to name the nontaxed return of unused premiums?
Dividend
In group life policies, a certificate of insurance is given to...
Each insured person
For a retirement plan to be qualified, it must be designed for the benefit of...
Employees Qualified plans are designed for the exclusive benefit of the employees and their beneficiaries.
When an employee terminates coverage under a group insurance policy, coverage continues in force...
For 31 days
In a direct transfer, how is money transferred from one retirement plan to a traditional IRA?
From trustee to trustee
If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is...
Fully insured
Life insurance death proceeds are
Generally not taxed as income
In life insurance policies, 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) because these are plans specifically for self-employed and their employees.
What is an eligibility requirement for all Social Security Disability Income benefits?
Have attained fully insured status
When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?
Interest only
What is the main purpose of the Seven-pay Test?
It determines if the insurance policy is a MEC.
If a retirement plan or annuity is "qualified," this means...
It is approved by the IRS
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
SIMPLE Plans which is for small businesses require all of the following...
No more than 100 employees Employees must receive a minimum of $5,000 in annual compensation
How are premiums in a key-person life insurance policy taxed?
Premiums are not tax deductible as a business expense
In which instance would the premium be tax deductible?
Premiums paid by an employer on a $30,000 group term life insurance plan for employees
Which type of retirement account does not require the owner to start taking distributions at age 72?
Roth IRA
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
An IRA purchased by a small employer to cover employees is known as a...
Simplified Employee Pension Plan (SEP)
Who would qualify for a Keogh Plan?
Someone who works for a self-employed individual Someone who works 1,000 hours per year Someone who has been employed for more than 12 months Someone who is over 25 years of age
A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as...
Survivor protection
What are the general requirements of a qualified plan?
The plan must be communicated to all employees. The plan must be for the exclusive benefits of the employees and their beneficiaries. The plan must be permanent, written and legally binding.
What best defines the "owner" as it pertains to life settlement contracts?
The policyowner of the life insurance policy
What type of life insurance is most commonly used for group plans?
annually renewable term
Death benefits payable to a beneficiary under a life insurance policy are generally
not subject to income taxation by the Federal Government
In a life settlement contract, whom does the life settlement broker represent?
owner
What is the primary purpose of a 401(k) plan?
retirement