Life Insurance - Taxes, Retirement, & Other Insurance Concepts

What are 3 examples of customs-privileged facilities?

1. Foreign trade zones (free trade zones) 2. Free ports 3. In-bond arrangements AKA Maquiladoras

What are 2 other phrases that mean Maquiladoras?

1. In-bond 2. Twin-plant program

What does Mexico permit in regards to a Maquiladora?

100% foreign ownership in the designated zone (65 N & S of the border) *This is thanks to NAFTA.*

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

100%. (If the employer pays all the premium, all employees must be covered to avoid adverse selection.)

The minimum number of credits required for partially insured status for Social Security disability benefits is ____.

6 credits.

To attain currently insured status under Social Security, a worker must have earned at lease ____ credits during the last 13 quarters?

6 credits.

What is required for a Maquiladora to operate?

80% of plant's output is exported

Who can make a fully deductible contribution to a traditional IRA?

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

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.

Employer contributions made to a qualified plan ____.

Are subject to vesting requirements. (Qualified plans must have a vesting requirement.)

What are customs privileged facilities?

Areas w/ special permission to have special tax rates/limited taxes.

SIMPLE plans require all of the following EXCEPT ____.

At least 1,000 employees. (A SIMPLE plan is available to small businesses that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year.)

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. (If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without providing insurability. The insurer will determine what a types of policy an employee may convert to, but it must be issued at a standard rate, based on the individual's attained age.)

Why is Mexico an attractive location for labor-intesive assembly?

Cheaper labor

Which of the following is true regarding taxation of dividends in participating policies?

Dividends are not taxable. (Dividends are not considered to be income for tax purposes, since they are the return of unused premiums. The interest earned on the dividends; however, is subject to taxation as ordinary income.)

What is an example of a customs - privileged facility?

Duty free area in an airport

In a direct rollover, how is the money transferred from one plan to the new one?

From trustee to trustee. (In a direct rollover, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan.)

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 nonqualified retirement plan?

It needs IRS approval. (Nonqualified retirement plans do not meet IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by the IRS.)

Which of the following 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?

Life expectancy. (Life expectancy is calculated on the average number of months the insured is projected to live due to medical history and mortality factors - an arithmetic mean.)

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a ____.

Modified Endowment Contract. (Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a MEC. It loses the benefits of a standard life contract.)

What is the official name of the Social Security program?

Old Age Survivors Disability Insurance (OASDI)

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.

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a ___.

Settlement option. (A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.)

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.

All of the following would be different between qualified and nonqualified retirement plans except ____.

Taxation on accumulation.

A corporation is the owner and beneficiary of the key person life policy. In the corporation collects the policy benefit, then ____ .

The benefit is received tax free. (Should a key person die, the benefit is treated as reimbursement to the business for loss of services.)

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?

The insured may choose to convert to term or permanent individual coverage.

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?

The insured may choose to convert to term or permanent individual coverage. (When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance.)

An employee quits his job on May 15 and doesn't convert his group life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen?

The insurer will pay the full death benefit from the group policy to the beneficiary.

All of the following statements concerning the use of life insurance as an executive bonus are correct EXCEPT ____.

The policy is owned by the company. (The policy is owned by the employee.)

All of the following would be eligible to establish a Keogh Retirement Plan except_____.

The president and employee of a family corporation. (Keogh plans are for self-employed individuals and their employees.)

Which of the following statements is NOT TRUE of life settlements?

The seller must be terminally ill.

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated?

Those who have been insured under the plan for at least 5 years.

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

Withdrawals are not taxable. (Any distributions from MECS are taxable, including withdrawals and policy loans.) ((All the other statements are true. Accumulations are tax deferred. Policy loans are taxable distributions. Distributions before age 59 1/2 incur a 10% penalty on policy gains.))

Which of the following statements regarding the taxation of modified endowment contracts is false?

Withdrawals are not taxable. (Any distributions from MECs are taxable, including withdrawals and policy loans. All other statements are true.)