Life Policy Provisions, Riders and Options

Accelerated benefits conditions when early payment of the death benefit:

- A terminal illness - medical condition that reequires an extraordinary medical intervention (organ transplant) for the insured to survive. - Medical condition that w/o extrensive treatment drastically limits the insured's life time. - Inability to perform ADLS Permanent institutionalization or confinement to a long-term care facility - Any other conditions approved by dept of insurance.

Nonforfeiture options

- Cash surrender value - Reduced paid-up insurance (lasts the longest) - Extended term (provides the most)

Taxation rules for Roth IRAs

- Contributions are not tax deductible - Excess contributions are subject to a 6% tax penalty.

WHen are the employers premiums not deductible

- Key employee insurance - Stock redemption or entity purchase agreement - Split-dollar insurance

When would the elderly penalty not occur with withdrawals?

- Person is 59.5 - Person is totally disabled - The money is used to make the down payment on a home (no more than 10k) - Withdrawals are for post-secondary education expenses - Withdrawals are for catastrophic medical expenses, or upon death.

What is the penalty for a (prior to 59.5) elderly distribution from IRA?

10%

How many credits of social security would a person earn each year?

4 credits/each year of work.

Fully insured

40 quarters or 10 years, entitles them to social security retirement, medicare, and survivor benefits.

When do IRA rollovers need to be completed?

60 days from when the money is taken out of the first plan. There's a 20% withholding fee

The difference between IRA and SEP

A much larger amount that can be contributed each year to SEP (IRS established dollar limit or 25%of compensation, which ever is less)

Profit Sharing

A portion of the company's profit is contributed to the plan and shared with the employees.

Dividends

A return of unused premiums, subject to taxation.

when does return of premium rider expire?

A specified age, usually 60.

Life settlement

A transaction where the owner of a life insurance policy sells their policy to a third party or provider for compensation

Simplified Employee Pensions (SEPs)

A type of qualified plan suited fro the small employer or for self-employed.

Which of the following premium payment modes will incur the lowest overall payment? A. Annual B. Semi-annual C. Quarterly D. Monthly

A. ANNUAL (only payment that doesnt have a service fee)

Nonqualified plans

Accept after tax contributions and on't have to be approved by the govt

Conversion Privilege

Allows employees who terminate group insurance to convert to an individual policy w/o proving insurability, can covert to any time besides term insurance. 31 days after termination to do this!!!

Payor Benefit rider

Allows the insured's premiums to be waived until the minor is 21, if the policyowner becomes disabled or dies.

Free look provision

Allows the policy owner 10 days from the receipt to look over the policy and if dissatisified for any reason, return it for a full refund of premium.

Executive bonus

An arrangement where an employer offers an employee a wage increase in the amount of a premium on a new life insurance policy. Tax deductible and income taxable for employee.

Nonprofit organization

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

What type of life insurance is most commonly used for group plans?

Annually renewable term

What type of insurance would be used for a Return of Premium rider? A. Annually Renewable term B. Increasing Term C. Level Term D. Decreasing Term

B. INCREASING TERM

Roth IRA

Can continue past age 70.5. Accounts are funded with after-tax contributions. They grow tax free as long as they have been open for 5 years.

What does "liquidity" refer to in a life insurance policy?

Cash values can be borrowed at any time.

What is the nontaxed return of unused premiums called?

Dividends

Cross purchase plan

Each partner involved purchases insurance on the life of each of the other partners.

Status clause

Excludes all causes of death while the insured is on active duty in the military.

In life insurance policies, cash value increases

Grow tax deferred.

Currently insure

If a person has earned 6 credits (QC) during the 13 qtr period ending with the quarter in which the insured dies, has disability benefits, or has entitled to old age insurance benefits

When is cash value taxable?

If the cash surrender value exceeds the amount of the premiums paid for the policy.

When does the employee have to report the premium paid by the employer as income?

If the policy coverage is > $50k

What funds the Buy-sell agreement

Life insurance

First in first out applies to _________ and Last in First out applies to ______.

Life insurance only, annuities

Policy endowment

Maturity date

Savings incentive Match Plan for Employees

No more than 100 employees, taht receive at least 5,000 in compensation from employer during the previous year.

Options

Offer insurers and insureds ways to invest or distribute a sum of money available in a life policy.

Return of premium riders

Pays the beneficiary not only the face amount on the policy but also the amount that has been paid in premiumsq

Gross Income

Person's income before taxes & other deductions

401K

Qualified retirement plans allows employees to take a reduction in their current salaries by deferring amounts into a retirement plan. The company can also match the employee contribution.

If the cash value exceeds the premiums paid, they are:

Taxable as ordinary income.

Entity Plan

The business itself is obligated to buy out the ownership interest of any deceased or disabled partner.

Modified endowment contract (MEC)

The cumulative premiums paid during the first 7 years of the policy exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.

Direct rollover

The distribution of money from the first plan directly to the trustee or administration of the new IRA plan.

What describes the tax advantage of a qualified retirement plan

The earnings in the plan accumulate tax deferred.

Noncontributory plan

The employer pays all of the premiums.

When does guaranteed insurability expire?

The insured's age 40

Vesting

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

Face amount (principal)

The sum paid on the policy's maturity date, on the death of the insured or on his total disability.

Exclusion

The types of risks the policy will not cover. Ex: aviation, hazardous occupation, and war and military service.

Group life insurance

This is issued to a sponsoring organization, and covers the lives of more than one individual member of that group. Written as annually renewable term.

Term riders

Usually added temporary insurance to a whole life policy to provide greater protection at a reduced cost.

How do self-employed persons fund their retirement?

With HR-10 or Keogh plans.

Rollover

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

Third-party owner

a legal term used to identify an individual or entity that is not an insured under the contract, but has a legally enforceable right under it.

Viatical settlements

allow someone living with a life-threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before death.

Reinstatement period

allows a lapsed policy to be put back in force up to 3 years after the policy lapse.

Traditional Individual Retirement account (IRA)

allows individuals to make tax deductible contributions until the age of 70.5. 50+ are allowed to make additional catch up contributions. - Withdrawals may begin at 59.5

Riders

are added to the policy to modify provisions that already exist.

In traditional IRA, Tax-deferred earnings (money that accumulates in the account)

are not taxed until withdrawn.

Other insured rider or family rider

covers one or more family members other than the insured.

Qualified retirement plan approved by the IRS gives both the employer and employee benefits suchas:

deductible contributions and tax deferred growth.

Provisions

define the characteristics of an insurance contract and are fairly universal.

Monthly deductions

include the actual cost of insurance charges, expense charges, and cost or charges for any benefits added to the policy by rider, endorsement or amendment, and which are specified in the policy to be deducted from the account value.

prohibited group

officers, stockholders, or highly paid employees

Incontestability clause

prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years.