Flash Cards Ch 4 retirement and other insurance concepts
what are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2?
10% penalty
what is the penalty for excessive contributions to a traditional IRA?
6%
what is the name for an overfunded life insurance policy?
A modified endowment contract (MEC)
Who may contribute to an HR-10 plan?
A self-employed individual
who would be considered a third-party owner?
An individual or an entity who is not the insured
group Life Insurance policies are written as what type of insurance?
Annually renewable term
what does liquidity mean in a life insurance policy?
Availability of cash value
What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?
Death benefits are generally not subject to income taxes
Why are dividends in life insurance policies not taxable?
Dividends are not considered income for tax purposes; They are a return of unused premium
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
what is the main advantage of converting from a group life insurance to individual coverage?
Evidence of insurability is not required
What type of policy is typically issued without proof of insurability from the insured?
Group policy
what type of policy issues certificate of insurance to the insurance?
Group policy
what are the characteristics of the group that underwriters will consider before issuing a group life policy?
Group purpose, size, financial strength and turnover
what qualified plan is suitable for the self-employed?
HR10 or keogh
what are some examples of qualified plans?
IRA, 401(k), HR10 (Keogh), SEP, SIMPLE
in what form of payment must the contributions to a traditional IRA be made?
In cash or cash equivalents
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
SIMPLE plans are available to groups of how many employees?
No more than 100
in qualified plans, our employer contributions taxed as income to the employees?
No, Employer contributions are not taxed income to the employees
is the death benefit of a life insurance policy tax to the beneficiary if It's received as a lump sum?
No, Lump sum benefits are received tax free
Upon surrender of a life insurance policy, what portion of the cash value will be tax?
Only the portion in excess of the premium paid
What is the primary purpose of a 401K plan?
Provide retirement income
What are the three types of Social Security benefits?
Retirement, disability and survivors
what are personal uses of a life insurance policy?
Survivor protection, estate creation and conservation, cash accumulation and liquidity
who owns a group life insurance contract?
The employer (also known as the sponsor of the group)
when planning for survivor protection and life insurance, what needs to be considered?
The insured's current assets, liabilities and survivors needs
if a retirement plan is qualified, what does that mean?
The plan has favorable tax treatment
what is the main purpose of the 7-pay test?
To determine if a life insurance policy is a Modified Endowment Contract
when would life insurance policy proceeds be included in the insureds taxable estate?
When there is an incident of ownership at the time of death
if an insured terminates membership in a group life insurance, to what type of insurance can the insured convert the coverage?
Whole life
according to the taxation rules of life insurance policies, how are cash value increases taxed?
cash value growth is tax deferred
who qualifies for tax-sheltered annuities, or 403(b) plans?
employees of nonprofit organizations under the 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. What is this called?
estate conservation
