Retirement and Other Insurance Concepts
If the beneficiary of a life insurance policy receives death benefit payments that consist of the principal and interest which portion if any will be taxed?
Interest only
What is the name for an overfunded life insurance policy?
Modified Endowment Contract (MEC)
Is the death benefit of a life insurance policy tax to the beneficiary if it is received as a lump sum?
No lump sum benefits are receive tax free
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
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 is the primary purpose of a 401(k) plan?
Provide retirement income
What are the three types of Social Security benefits?
Retirement, disability and survivors
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 traditional IRA?
6%
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
What does liquidity mean in a life insurance policy?
Availability of cash value
According to the taxation rule of life insurance policies, how are cash values increases taxed?
Cash value growth is tax deferred
What is the general taxation rule for death benefits, payable to a beneficiary of a life insurance policy?
Death benefits are generally not subject to income tax
Why are dividends in life insurance policies not taxable?
Dividends are not considered income for tax purposes; they are a return of unused premium.
For retirement plan to be qualified, it must be designed for who's benefit?
Employees
Who qualifies for tax sheltered annuity's or 403(b) plans
Employees of nonprofit organizations under section 501(c)(3) and employees of a public school system
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
What is the main advantage of converting from group life insurance to individual coverage?
Evidence of insurability is not required
What type of policy is typically issues without proof of insurability from the insured?
Group Policy
What type of policy issues certificates of insurance to the insurance?
Group Policy
What are the characteristics of the group that underwriters will consider before using a group life policy?
Groups purpose, size, financial strengths and turnover
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
In what form of payment mask the contributions to a traditional IRA be made?
In cash or (cash equivalent)
What are the personal uses of life insurance?
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 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 the life insurance policy proceeds be included in the insurance taxable estate?
When there is an incident of ownership at the time of death
If an insured terminates membership and group life insurance to what type of insurance can they convert the coverage?
Whole life
Group life insurance policies are written as what type of insurance?
annually renewable term
What is required to qualify an individual to contribute to the traditional IRA?
earned income
