Chapter: Taxes, Retirement, and Other Insurance Concepts

All of the following statements are true regarding tax-qualified annuities EXCEPT

Employer contributions are not tax deductible

An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?

A portion of the benefit up to a limit is tax free; the rest is taxable income

Which of the following is true regarding taxation of dividends in participating policies?

Dividends are not taxable. However, the interest earned on dividends is subject to taxation as ordinary income.

If taken as a lump sum, life insurance proceeds to beneficiaries are passed

Free of federal income taxation

All of the following are business uses of life insurance EXCEPT

Funding against companies financial losses

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

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

Which of the following would be considered a nonqualified retirement plan?

Split-dollar plan

A corporation is the owner and beneficiary of the key person policy. If the corporation collects the policy benefit, then

The benefit is received tax free

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

The policy is owned by the company. Correction--employee.

Who is a third-party owner?

A policyowner who is not the insured

Employer contributions made to a qualified plan

Are subject to vesting requirements

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-- They also set a value (purchase buy) on a business.

Which of the following terms is used to name the nontaxed return of unused premiums?

Dividends

What is the main purpose of the Seven-pay Test?

It determines if the insurance policy is a Modified Endowment Contract (MEC)-- OVERFUNDED: AKA, must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.

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

In a single employer group, what is the name of the policy issued to the employer?

Master contract

Which type of retirement account does not require the owner to start taking distribution 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. Self employed persons may contribute to an HR-10 plan

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

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.

All of the following are true of key person insurance EXCEPT

The plan is funded by permanent insurance only. Key person can be funded by any type of life insurance

Which of the following is NOT true of life settlements?

The seller must be terminally ill

How are contributions to a tax-sheltered annuity treated with regards to taxation?

They are not included as income for the employee, but are taxable upon distribution

Which of the following is the best reason to purchase life insurance rather than annuities?

To create an estate

In which of the following instances would the premium be tax deductible?

When a employer buys group term life insurance for his employees

Which of the following is NOT an example of a business use of Life Insurance?

Workers Compensation (benefit payable when a worker is injured by a work-related injury)