Taxes, Retirement, and Other Insurance Concepts Quizzes

What type of life insurance is most commonly used for group plans? Whole life Flexible premium whole life Decreasing term Annually renewable term

Annually renewable term Group insurance is usually written for employee-employer groups as annually renewable term insurance.

Social Security was created to protect against all of the following EXCEPT Disability. Bad investment choices. Sickness in old age. Premature death.

Social Security is a Federal program enacted in 1935, that is designed to provide protection, for eligible workers and their dependents, against financial loss due to death, disability, superannuation (retirement income), and sickness in old age.

All of the following would be different between qualified and nonqualified retirement plans EXCEPT Taxation on accumulation Taxation of withdrawals Taxation of contributions IRS approval requirements

IRS approval requirements Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.

All of the following are general requirements of a qualified plan EXCEPT -The plan must be permanent, written and legally binding. -The plan must provide an offset for social security benefits. -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 provide an offset for social security benefits. Plans must meet the general requirements established by IRS.

If a company has a Simplified Employee Pension plan, what type of plan is it? -The same as an IRA, with the same contribution limits -An undefined contribution plan for large businesses -A qualified plan for a small business -The same as a 401(k) plan

-A qualified plan for a small business A Simplified Employee Pension (SEP) is a type of qualified plan suited for the small employer or for self-employed. A SEP is an employer-sponsored IRA with an expanded contribution rate up to 25% of compensation or a specified maximum contribution amount.

The minimum number of credits required for partially insured status for Social Security disability benefits is 4 credits. 6 credits. 10 credits. 40 credits.

6 credits. To be considered partially insured, an individual must have earned 6 credits during the last 13-quarter period.

SIMPLE Plans require all of the following EXCEPT -No other qualified plan can be used. -No more than 100 employees. -Employees must receive a minimum of $5,000 in annual compensation. -At least 1,000 employees.

-No more than 100 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.

When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n) Aleatory contract. Executive bonus. Key person policy. Fraternal association.

Executive bonus. When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called an executive bonus.

Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy? -The Key Person is the owner and beneficiary. -The Key Person is the owner and the employer is the beneficiary. -The employer is the owner and beneficiary. -The employer is the owner and the Key Person is the beneficiary.

-The employer is the owner and beneficiary. With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.

When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n) Executive bonus. Key person policy. Fraternal association. Aleatory contract.

Executive bonus. When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called an executive bonus.

In which of the following instances would the premium be tax deductible? -Premiums paid by a mother on her son's policy -Premiums paid by an employer on the life of a key person -Premiums paid by an employer on a $30,000 group term life insurance plan for employees -Premiums paid by an individual on his/her own life insurance

-Premiums paid by an employer on a $30,000 group term life insurance plan for employees As a general rule, premiums paid for life insurance are not tax deductible. The exception to this rule is when an employer buys group term life insurance for his employees since it is considered a business expense.

What is the number of credits required for fully insured status for Social Security disability benefits? 4 10 30 40

40 The term "fully insured" refers to someone who has earned 40 quarters of coverage (10 years of work times 4 maximum annual credits).

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 worked in the company for at least 3 years -Those who have dependents -Those who have no history of claims -Those who have been insured under the plan for at least 5 years

-Those who have been insured under the plan for at least 5 years If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage.

Who is a third-party owner? An insurer who issues a policy for two people An employee in a group policy An irrevocable beneficiary A policyowner who is not the insured

A policyowner who is not the insured Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? -Company is the owner, but the executive pays the premium. -Board of directors is the owner, and the board of directors pays the premium. -Company is the owner, and the company pays the premium. -Executive is the owner, and the executive pays the premium.

-Executive is the owner, and the executive pays the premium. Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.

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 Experience Rating. Group rate. Insurer's scheduled rate. Attained age.

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 proving insurability. The insurer will determine what type(s) of policy an employee may convert to, but it must be issued at a standard rate, based on the individual's attained age.

An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover? $8,000, 30 days $10,000, 60 days $10,000, 30 days $8,000, 60 days

$8,000, 60 days Generally, IRA rollovers must be completed within 60 days from the time the money is taken out of the first plan. If the distribution from the first plan is paid directly to the participant, 20% of the distribution must be withheld by the payor.

Which of the following statements about group life is correct? -The premiums are higher than in an individual policy because there is no medical exam. -The group sponsor receives a Certificate of Insurance. -The policy can be converted to an individual term insurance policy. -The cost of coverage is based on the ratio of men and women in the group.

-The cost of coverage is based on the ratio of men and women in the group. Group life insurance can be converted to an individual whole life, not a term, policy; the group life insurance premiums are usually lower than those of an individual policy; the group sponsor receives a master contract, while the participants receive certificates of insurance. The cost of the coverage is based on the average age of the group and the ratio of men to women.

All of the following are true of key person insurance EXCEPT -The key employee is the insured. -The plan is funded by permanent insurance only. -There is no limitation on the number of key employee plans in force at any one time. -The employer is the owner, payor and beneficiary of the policy.

-The plan is funded by permanent insurance only. Key Person coverage may be funded by any type of life insurance.

How are contributions to a tax-sheltered annuity treated with regards to taxation? -They are never taxed. -They are taxed as income for the employee. -They are taxed as income for the employee, but are tax free upon withdrawal. -They are not included as income for the employee, but are taxable upon distribution.

-They are not included as income for the employee, but are taxable upon distribution. Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal.

Which of the following is NOT an example of a business use of Life Insurance? Buy-sell Funding Executive Bonuses Key Person Workers Compensation

Workers Compensation Workers Compensation is a benefit payable when a worker is injured by a work-related injury, regardless of fault or negligence. It is not considered a business use of insurance.

A tax-sheltered annuity is a special tax-favored retirement plan available to Anyone. Certain age groups only. Certain groups depending on factors such as race, gender, and age. Certain groups of employees only.

Certain groups of employees only. A tax-sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education).

Two attorneys at law and 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 Section 457 Deferred Compensation Plan. 403(b) PLAN. 401(k) plan. HR-10 (Keogh Plan).

HR-10 (Keogh Plan). HR-10 (Keogh Plans) are plans specifically for self-employed and their employees.

All of the following are examples of third-party ownership of a life insurance policy EXCEPT -An insured couple purchases a life insurance policy insuring the life of their grandson. -A company purchases a life insurance policy on their manager, who is an important part of the operation. -When an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company. -An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.

-An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.

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 a reduced death benefit to the beneficiary. -The insurer will pay the death benefit minus one month's premium. -The insurer will pay nothing because the employee has terminated his group insurance and hasn't started the individual one. -The insurer will pay the full death benefit from the group policy to the beneficiary.

-The insurer will pay the full death benefit from the group policy to the beneficiary. The employee usually has a period of 31 days after terminating from the group in order to exercise the conversion option. During this time, the employee is still covered under the original group policy.

Which of the following would be considered a nonqualified retirement plan? Split-dollar plan 401(k) Keogh plan Roth IRA

Split-dollar plan Examples of nonqualified plans are individual annuities and deferred compensation plans for highly paid executives, split-dollar insurance arrangements, and Section 162 executive bonus plans.

All of the following would be eligible to establish a Keogh retirement plan EXCEPT -A sole proprietor of film development store with no employees. -A hair dresser who operates her business at her house. -The president and employee of a family corporation. -A sole proprietor of a service station who employs four employees.

-The president and employee of a family corporation. Keogh plans are for self-employed individuals and their 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? 401(k) plan Tax-sheltered account plan HR 10 plan Profit sharing plan

Profit sharing plan A profit sharing plan is one where the employer will contribute monies into an employee's retirement plan when the company shows a profit. The others are all qualified plans, but company profit isn't an issue with them.