Taxes, Retirement, and Other Insurance Concepts
Who is a third-party owner?
A policyowner who is not the insured
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.
All of the following are personal uses of life insurance EXCEPT
Buy-sell agreement.
What is the official name for the Social Security program?
Old Age Survivors Disability Insurance
In a life settlement contract, whom does the life settlement broker represent?
The owner
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
Social Security was created to provide all of the following benefits EXCEPT
Unemployment income.
Which of the following types of insurance policies would perform the function of cash accumulation?
Whole life
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
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
An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?
$3,000
What percentage of a company's employees must take part in a noncontributory group life plan?
100%
Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT?
100% participation of members is required in noncontributory plans.
An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n)
403(b) Plan (TSA).
Employer contributions made to a qualified plan
Are subject to vesting requirements.
In terms of Social Security, what is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called?
Blackout Period
A life insurance policy used to fund an agreement that contractually establishes the intent of someone to purchase a business upon the insured business owner's death is a
Buy-sell agreement.
What does "liquidity" refer to in a life insurance policy?
Cash values can be borrowed at any time.
A key person insurance policy can pay for which of the following?
Costs of training a replacement
A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a
Cross-purchase plan.
Which of the following is true regarding taxation of dividends in participating policies?
Dividends are not taxable.
For a retirement plan to be qualified, it must be designed for the benefit of
Employees.
When an employee terminates coverage under a group insurance policy, coverage continues in force
For 31 days.
In a direct rollover, how is the money transferred from one plan to the new one?
From trustee to trustee
All of the following are business uses of life insurance EXCEPT
Funding against company's general financial loss.
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).
Which of the following is an eligibility requirement for all Social Security Disability Income benefits?
Have attained fully insured status
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.
If a retirement plan or annuity is "qualified," this means
It is approved by the IRS.
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
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an
Modified endowment contract.
Death benefits payable to a beneficiary under a life insurance policy are generally
Not subject to income taxation by the Federal Government.
All of the following are characteristics of group life insurance EXCEPT
Premiums are determined by the age, sex and occupation of each individual certificate holder.
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
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.
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.
The premiums paid by the employer in a business life insurance policy are
Tax deductible by the employer.
Traditional IRA contributions are
Tax deductible.
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. If the corporation collects the policy benefit, then
The benefit is received tax free.
Which of the following is an example of liquidity in a life insurance contract?
The cash value available to the policyowner
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 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.
Which of the following best defines the "owner" as it pertains to life settlement contracts?
The policyowner of the life insurance policy
Which of the following 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
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
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.
Which of the following is INCORRECT concerning a noncontributory group plan?
The employees receive individual policies.
Who is the owner and who is the beneficiary on a Key Person Life Insurance policy?
The employer is the owner and beneficiary.
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 is the best reason to purchase life insurance rather than annuities?
To create an estate
What is the purpose of key person insurance?
To lessen the risk of financial loss because of the death of a key employee
