Taxes, retirement and other insurance concepts
An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize?
Viatical settlement
What is the name of the insured who enters into a viatical settlement?
Viator
Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?
Withdrawals are not taxable.
Which of the following is NOT an example of a business use of Life Insurance?
Workers Compensation
A key person insurance policy can pay for which of the following?
Costs of training a replacement
Can you give some examples of qualified retirement plans?
Traditional IRA, Roth IRA, SIMPLE, SEP, 401K
Who is the owner and who is the beneficiary on a Key Person Life Insurance policy?
The employer is the owner and beneficiary.
An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer?
$10,000, no tax consequence
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?
$3,000
What percentage of a company's employees must take part in a noncontributory group life plan?
100%
When an employee terminates coverage under a group insurance policy, coverage continues in force
31 days
An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n)
403(b) Plan (TSA).
In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?
5 years
The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unavailable to lower-echelon employees. This plan would be funded with before-tax corporate dollars, and it does not meet government approval standards. This annuity plan is
A nonqualified annuity plan.
Who is a third-party owner?
A policyowner who is not the insured
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
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.
What type of life insurance is most commonly used for group plans?
Annually renewable term
Employer contributions made to a qualified plan
Are subject to vesting requirements.
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.
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.
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
In a direct transfer, how is money transferred from one retirement plan to a traditional IRA?
From trustee to trustee
In a life settlement contract, whom does the life settlement broker represent?
The owner
All of the following are true of key person insurance EXCEPT
The plan is funded by permanent insurance only.
All of the following are general requirements of a qualified plan EXCEPT
The plan must provide an offset for social security benefits.
Which of the following best defines the "owner" as it pertains to life settlement contracts?
The policyowner of the life insurance policy
All of the following would be eligible to establish a Keogh retirement plan EXCEPT
The president and employee of a family corporation.
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).
When would life insurance death benefits be tax free?
If paid as a lump sum to beneficiary
What is the main purpose of the Seven-pay Test?
It determines if the insurance policy is a MEC.
Which of the following is TRUE of a qualified plan?
It has a tax benefit for both employer and employee.
f a retirement plan or annuity is "qualified," this means
It is approved by the IRS.
Which of the following is NOT true regarding a nonqualified retirement plan?
It needs IRS approval.
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
Which of the following is an IRS qualified retirement program for the self-employed?
Keogh plan
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?
Life expectancy
In a single employer group plan, what is the name of the policy issued to the employer?
Master contract
Death benefits payable to a beneficiary under a life insurance policy are generally
Not subject to income taxation by the Federal Government.
Traditional IRA contributions are tax deductible based on which of the following?
Owner's income
All of the following statements are true regarding group insurance EXCEPT
Participants in the policy each receive a policy.
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?
Premiums are not tax deductible as a business expense.
In which of the following instances would the premium be tax deductible?
Premiums paid by an employer on a $30,000 group term life insurance plan for employees
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
All of the following are characteristics of a group life insurance plan EXCEPT
There is a requirement to prove insurability on the part of the participants.
Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings?
They are tax deferred until withdrawn.
Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner?
Third-party ownership
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
If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may
Require evidence of insurability.
What is the primary purpose of a 401(k) plan?
Retirement
Which type of retirement account does not require the owner to start taking distributions at age 72?
Roth IRA
Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT?
SEPs are suitable for large companies.
Who may contribute to a Keogh (HR-10) plan?
Self-employed plumber
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.
An IRA purchased by a small employer to cover employees is known as a
Simplified Employee Pension plan.
Which of the following applicants would NOT qualify for a Keogh Plan?
Someone who works 400 hours per year
Which of the following would be considered a nonqualified retirement plan?
Split-dollar plan
The premiums paid by the employer in a business life insurance policy are
Tax deductible by the employer.
All of the following would be different between qualified and nonqualified retirement plans EXCEPT
Taxation on accumulation
All of the following employees may use a 403(b) plan for their retirement EXCEPT
The CEO of a private corporation.
A 60-year-old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true?
The amount of the distribution is reduced by the amount of a 20% withholding tax.
Which of the following statements about group life is correct?
The cost of coverage is based on the ratio of men and women in the group.
In group life insurance, who receives the master contract?
The employer
Traditional IRA contributions are tax deductible based on which of the following?
owner's income
