Taxes, Retirement, and Other Insurance Concepts

The purchase of life insurance

Creates an immediate estate

Qualified plans

have tax advantages

A MEC is an overfunded life insurance policy

= failed the 7 pay test

Once a MEC

Always a MEC

Conversion privilege

An element of some group insurance policies which allow an insured to continue coverage under an individual policy if they are leaving the employer or organization or if the group contract is terminated. individual had 31 days to convert, and doesn't need to prove insurability.

If a retirement plan is 'qualified', what does that mean?

It is approved by the IRS

Death benefit

Tax free if taken in a lump sum distribution to a named beneficiary and Principal is tax free, interest is taxable if paid in installments

Simplified Employee Pension (SEP)

Tax-deferred account to which the self-employed and employees of very small businesses can contribute.

When an employer is pays all of the premiums

The plan is referred to as a non contributory plan

Which of the following statements regarding the taxation of modified endowment contract is FALSE?

Withdrawals are not taxable

Traditional IRAs and ROTH IRAs

are for individuals with earned income

Premiums

are not tax deductible

Viatical brokers represent

the insured

Old Age, Survivors, and Disability Insurance (OASDI)

A Federal program enacted in 1935, which is designed to provide protection for eligible workers and their dependents against financial loss due to old age

403 (b)

Are for nonprofits and public-school systems

Cross Purchase Plan

Business continuation funding plan whereby each partner agrees to buy Life policies on each other, but not themselves.

In a direct transfer, how is the money transferred from one retirement plan to a traditional IRA?

From trustee to trustee

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

Cash value of a business owned life insurance policy

accumulates on a tax-deferred basis an is taxed in the same manner as an individually owned policy

Individual Retirement Account

allows individuals with earned income to make tax deductible contributions regardless of age

Buy-Sell Agreement

are used to contractually establish the intent of someone else to purchase the business upon the insured's death and sets value on a business

Contributions to a traditional IRA are with pre tax dollars (tax deductible)

contributions to a ROTH IRA are with after tax dollars (NOT tax deductible)

Policy loans

from the cash value are NOT income taxable

Rollover

is a tax free distribution of cash from one retirement plan to another. Generally within 60 days)

Key Person Insurance

protects against the loss of a key employee or key executive by making the business the beneficiary if a key person dies. The business is the owner, premium payor, and beneficiary.

viatical producers represent

providers

Insureds

referred to as viators

Transfer

refers to a tax free transfer of funds from one retirement program to a traditional IRA or a transfer of interest in a traditional IRA from one trustee directly to another

When the premiums are shared between the employer and employees

the plan is referred to as a contributory plan

All of the following are examples of a third party ownership of a life insurance policy EXCEPT

An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan

Qualified retirement plan

Approved by the IRS, which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth.

Group Insurance

is written as annually renewable term insurance

Viatical Settlement Provider

When a company purchases life insurance from a policy owner. They buy a % of the death benefit. They must pay the premium on the policy. It is usually sold to terminally ill patients (death of 24 months or less)

In a life settlement

the owner sells an existing life policy to a third party

Executive bonus

is an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee.

3rd party ownership

legal term used to identify an individual that is not insured under the contract, but has a legally enforceable right under it. Usually involve minors in which the parents owns the policy.

Policy loans

not income taxable. Unlike an individual taxpayer, a corporation may deduct interest on a life insurance policy up to 50,000

In group insurance,

the master contract is for the employer, and certificates of insurance are for individual insureds.

Which of the following is incorrect concerning a noncontributory group plan?

The employees receive individual policies; The employer receives a master policy, and employees receive a certificate of insurance

Self employed plans (HR-10 or Keogh Plans)

KEOGH Plans, or HR-10 Plans, allow self employed individuals to fund their retirement programs with pre-tax dollars as if under a corporate retirement or pension plan. To be eligible, the person must be self employed or a partner working part time or full time who owns at least 10 % of the business

insured status (social security)

fully insured, 40 quarters of coverage, 10 years of work- partially insured, 6 out of the last 13 quarters before becoming eligible for benefits