ch 4: taxes, retirement, and other insurance concepts
Who can make a fully deductible contribution to a traditional IRA?
An individual not covered by an employer-sponsored plan who has earned income
Who would be considered a third-party owner?
An individual or an entity who is not the insured
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.
An employee quit 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 requirements of eligibility for social security disability income benefits except
Being age 65
what are the personal uses of life insurance?
Survivor protection, estate creation and conservation, cash accumulation and liquidity
what is the main purpose of the 7-pay test?
to determine if a life ins policy is a modified endowment contract
All of the following benefits are available under social security except
welfare benefits
When would life insurance policy proceeds be included in the insured's taxable estate?
when there is an incident of ownership at the time of death
If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?
whole life
to attain currently insured status under social security, a worker must have earned at least how many credits during the last 13 quarters?
6 credits
what is the penalty for excessive contributions to a traditional IRA?
6%
If a company has a simplified employee pension plan, what type of plan is it?
A qualified plan for a small business
Who may contribute to an HR-10 plan?
A self-employed individual
all of the following are examples of third-party ownership of a life insurance policy except:
collateral assignment ( transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but doesn't give creditor rights of ownership)
a key person insurance policy can pay for which of the following?
costs of training a replacement
Why are dividends in life insurance policies not taxable?
dividends are not considered income for tax purposes; they are a return of unused premium
which of the following is true regarding taxation of dividends in participating policies?
dividends are not taxable
what is required to qualify an individual to contribute to a traditional IRA?
earned income
For a retirement plan to be qualified, it must be designed for whose benefit?
employees
who qualifies for tax-sheltered annuities, or 403(b) plans?
employees of nonprofit under section 501(c) (3) and employees of public school systems
life insurance may be used to Pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. wht=at is this called?
estate conversion
in what form of payment must the contributions to a traditional IRA be made?
in cash
If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion, if any, will be taxed?
interest only
what is the main advantage of converting from group life ins to individual coverage?
evidence of insurability is not required
in qualified plans, are employers contributions taxed as income to the employees?
no
Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy?
the employer is the owner and beneficiary
when an employee terminates coverage under a group policy, coverage continues in force
for 31 days
what type of policy is typically issued without proof of insurability from the insured?
group policy
what type of policy issues certificates of insurance to the insureds?
group policy
what are the characteristics of the group that underwriters will consider before issuing a group life policy?
group's purpose, size, financial strength, and turnover
which of the following is an eligibility requirement for all social security disability income benefits?
have attained fully insured status
If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?
it is only taxable if the cash value exceeds the amount paid for premiums
which of the following is NOT true regarding a non qualified retirement plan?
it needs IRS approval
SIMPLE plans are available to groups of how many employees?
no more than 100
what is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?
not subject to income taxes
Upon surrender of a life insurance policy, what portion of the cash value will be taxed?
only the portion in excess of the premium paid
traditional IRA contributions are tax deductible based on which of the following?
owners income
what is the primary purpose of a 401 (k) plan?
provide retirement income
what are the three types of social security benefits?
retirement, disability, & survivors
the premiums paid by the employer in a business life insurance policy are
taxable by the employer
an employee is insured under her employer's group life plan. if she terminates her group coverage, which of the following statement is incorrect?
the insured may choose to convert to term/permanent individual coverage (insurer determines permanent ins)
when planning for survivor protection in life ins, what needs to be considered?
the insured's current assets, liabilities and survivor's needs
if a retirement plan is qualified, what does that mean?
the plan has favorable tax treatment
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?
$10,000 no tax consequence (rollover)
what are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2?
10% penalty
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
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
Life insurance death proceeds are
Generally not taxed as income
What qualified plan is suitable for the self-employed?
HR-10 OR KEOGH
what are some examples of qualified plans?
IRA, 401(k), HR10 (Keogh), SEP, SIMPLE
Death benefits payable to a beneficiary under a life insurance policy are generally
Not subject to income taxation by the Federal Government
Which of the following would be considered a nonqualified retirement plan?
Split-dollar plan
Who owns a group life insurance contract?
The employer (also known as the sponsor of the group)
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
what is the name for an overfunded life ins policy?
a modified endowment contract MEC
group life insurance policies are written as what type of ins?
annually renewable term
what does liquidity mean in a life ins policy
availability of cash value
which of the following statements concerning buy-sell agreements is true?
buy-sell agreements are usually funded w/ a life ins policy
According to the taxation rules of life insurance policies, how are cash value increases taxed?
cash value growth is tax deferred
which of the following insurance agreements will be appropriate for a parent buying a life insurance policy on a child where the parent is the Policyowner?
third-party ownership
