LIFE INSURANCE - TAXES AND OTHER INSURANCE CONCEPTS

Contributory Plan

When the premiums for group insurance are shared between the employer and employees. An insurer will require that 75% of eligible employees be included in the plan.

A self-employed

Who may contribute to an HR-10 plan?

Employees of nonprofit organizations under 501(c)(3) and employees of public school systems

Who qualified for tax-sheltered annuities, or 403(b) plans?

Dividends are not considered income for tax purposes; they are a return on unused premium

Why are dividends in life insurance policies not taxable

Rollover

Withdrawal of the money from one qualified plan and placing it into another plan

Policy Endowment

maturity date

Noncontributory Plan

When an employer pays all of the premiums, the plan is referred to as a

At distribution, all amounts received by the employee are tax free

A false statement regarding the federal tax advantages of a qualified plan

3rd Party Ownership

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. General features are: The policyowner and the insured are not the same person. The policies written in business situations or for minors in which the parent owns the policy.

Gross Income

A person's income before taxes or other deductions

Cash value growth is tax deferred

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

Viatical Settlements

Allow someone living with a life threatening condition to sell their existing life insurance policy and uses the proceeds when they are most needed; before their death.

Nonprofit Organization

An organization that uses its surplus to fulfill its purpose instead of distributing the surplus to its owner of members

The earnings in a qualified plan accumulate tax deferred

Best describes the tax advantage of a qualified retirement plan

Pretax Contribution

Contribution made before federal and/or state taxes are deducted from earnings

Surrender

Early termination of a policy by the policyowner

Whole Life

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

Interest only

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?

The owner

In a life settlement contract, whom does the life settlement broker represent?

Life Settlement Provider

Is a person (other than the owner) who enters into a life settlement contract with the owner

Life Settlement Broker

Is a person who, compensation, solicits, negotiates, or offers to negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowner, and have a fiduciary duty to the owners to act according to their instructions and their best interest.

No, lump-sum benefits are received tax free

Is the death benefit of a life insurance policy taxed to the beneficiary if it's received as a lump sum?

Viator

Is the insured who has terminal illness

Solicits, negotiates, or offers to negotiate a life settlement contract

Life settlement Broker is a person who, for compensation, _______________________________

LIFO (Last In, First Out)

Principle applied to asset management in life insurance products, under which it is assumed that the funds paid into the policy last will be paid out first

FIFO (First In, First Out)

Principle under which it is assumed that the funds paid into the policy first will be paid out first

Life Settlement

Refers to any financial transaction in which the owner of a life insurance policy sells a life insurance policy to a 3rd party for some compensation usually cash.

Earned Income

Salary, wages, or commissions; but not income from investments, unemployment benefits, and similar sources of income

Tax Deferred

Taxes on investments or gains (such as interest dividends) are paid at a future date instead of in the period in which they are incurred tax

Vesting

The right of a participant in a retirement plan to retain part or all of the benefits

The insured's

Viatical brokers represent

Viators

Viatical settlement insured's are referred to as ____________

A person, other than a viator, that enters into a viatical settlement contract

Viatical settlement provider means __________

Policy options

Viatical settlements are NOT _______________

Sells the death benefit to a 3rd party at a discounted rate

Viatical settlements are separate contracts in which the insured ____________________________

A percentage of the policy's face amount

Viator receives ______________________

A percentage of the policy's face value from the person who purchases the policy. The new owner continues to maintain premium payments and will eventually collect the entire death benefit.

Viators usually receive _________________________

IRA 401(k) HR10 (Keogh) SEP SIMPLE

What are some examples of qualified plans?

10% penalty

What are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2?

Survivor protection Estate creation and conservation Cash accumulation and liquidity

What are the personal uses of life insurance

Retirement Disabilities Survivors

What are the three types of Social Security benefits?

Availability of cash value

What does liquidity mean in a life insurance policy?

Death benefits are generally not subject to income taxes

What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?

A Modified Endowment Contract (MEC)

What is the name for an overfunded life insurance policy?

6%

What is the penalty for excessive contributions to a traditional IRA?