Florida 2 15 Taxes, Retirement, and other Insurance Concepts

What are the consequences of withdrawing funds from a traditional IRA prior to the age of 591/2?

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 would be considered a third-party owner?

An individual or an entity who is not the insured

What does liquidity mean in a life insurance policy?

Available cash value

According to the taxation rules of life insurance policies, how are cash value increases taxed?

Cash value growth is tax deferred

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 because they're a return of unused premium.

Life insurance may be used to pay state inheritance taxes and federal estates taxes eliminating the need to sells assets from the estate. What is this called?

Estate conservation

What is the main advantage of converting from group life insurance to individual coverage?

Evidence of insurability is not required

What are the characteristics of the group that underwriters will consider before issuing a group policy?

Groups purpose, size, financial strength, and turnover

What are some examples of what qualified plans?

IRA, 401(k), HR10(Keogh) , SEP, and SIMPLE

In what form of payment must the contributions

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, are employer contributions taxed as income to the employees?

No, employer contributions are not taxed as income to the employees

Is the death benefit of a life insurance policy taxed 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 taxed?

Only the portion in excess of the premium paid

What are the three types of Social Security benefits

Retirement, disability and survivors

What are the personal uses of life insurance?

Survivor protection, estate creation and conservation, cash accumulation and liquidity

When planning for survivor protection in life insurance, 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

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 insured's taxable estate?

When there is an incident of ownership at the time of death

What is required to qualify an individual to contribute to a traditional IRA?

earned income

If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?

whole life