Chapter 4
TRUE OR FALSE: Group Insurance If the master contract is terminated , every individual who has been on the plan for at least 5 years will be allowed to convert to individual permanent insurance of the same coverage.
TRUE
TRUE OR FALSE: Group insurance is written as annuity renewable term insurance.
TRUE
TRUE OR FALSE: Self-employed Plans Under eligibility requirements, any individual who is at least 21 years of age, has worked for a self-employed person for one year or more, and worked at least 1,000 hours per year (full time) must be included in the Keogh Plan.
TRUE
SIMPLE Plans require all of the following EXCEPT A) At least 1,000 employees. B) No other qualified plan can be used. C) No more than 100 employees. D) Employees must receive a minimum of $5,000 in annual compensation.
A) At least 1,000 employees.
If a retirement plan or annuity is "qualified", this means A) It is noncancellable. B) It is approved by the IRS. C) It has a penalty for early withdrawal. D) It accepts after-tax contributions.
B) It is approved by the IRS.
TRUE OR FALSE: Dividends are a return of unused premiums, they are not considered income for tax purposes.
TRUE
TRUE OR FALSE: Personal Insurance Needs: Survivor Protection Cash Accumulation Liquidity Estate Creation Estate Conversation
TRUE
TRUE OR FALSE: Life settlement brokers represent only the policy owners
TRUE
TRUE OR FALSE: Life insurance proceeds paid to a named beneficiary are generally free of federal income taxation if taken as a lump sum. If the benefit payment results from a transfer for value, meaning the life insurance policy is sold to another party prior to the insured's death.
TRUE
In a life settlement contract, whom does the life settlement broker represent? A) The life settlement intermediary B) The owner C) The insurer D) The beneficiary
B) The owner
Which of the following best defines the "owner" as it pertains to life settlement contracts? A) The policyowner of the life insurance policy B) A financial entity that sponsors the transaction C) A fiduciary for the contract D) The insurance provider
A) The policyowner of the life insurance policy
All of the following statements are true regarding tax-qualified annuities EXCEPT A) They must be approved by the IRS. B) Withdrawals are taxed. C) Employer contributions are not tax deductible. D) Annuity earnings are tax deferred.
C) Employer contributions are not tax deductible.
Which of the following is NOT true regarding a nonqualified retirement plan? A) It can discriminate in benefits and selecting participants. B) Earnings grow tax deferred. C) It needs IRS approval. D) Contributions are not currently tax deductible.
C) It needs IRS approval.
All of the following would be eligible to establish a Keogh retirement plan EXCEPT
The president and employee of a family corporation
TRUE OR FALSE: Key Person Insurance If the key employee dies, the benefits paid to the business are usually received tax free. No special agreements or contracts are needed except that the employee(s) would need to give permission for this coverage.
TRUE
In a single employer group plan, what is the name of the policy issued to the employer? A) Master contract B) Certificate of insurance C) Employer-insurer contract D) Certificate of authority
A) Master contract In group insurance, the actual policy is issued to the sponsor of the group
An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? A) The insured may convert coverage to an individual policy within 31 days. B) The premium for individual coverage will be based upon the insured's attained age. C) The insured may choose to convert to term or permanent individual coverage. D) The insured would not need to prove insurability for a conversion policy.
C) The insured may choose to convert to term or permanent individual coverage.
TRUE OR FALSE: surrenders When the owner withdraws cash value from a universal like policy(partial surrender), both the cash value and the death benefit are reduced by the surrender.
TRUE
Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages? A) 3 B) 5 C) 7 D) 10
A) 3
For a retirement plan to be qualified, it must be designed for the benefit of A) Employees B) Key employee C) Employer D) IRS
A) Employees
An employee is joining a group insurance plan. In order to avoid having to prove insurability, what must the employee do? A) Join during the open enrollment period B) Provide medical records to the insurer C) Sign a statement of continued good health D) Nothing: proof of insurance is never required in a group policies
A) Join during the open enrollment period
All of the following statements are true regarding group insurance EXCEPT A) Participants in the policy each receive a policy. B) The group sponsor is the policyholder. C) Participants in a group insurance plan are issued certificates of insurance D) Small groups such as labor unions are eligible group insurance.
A) Participants in the policy each receive a policy.
An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called? A) Profit sharing plan B) 401(K) plan C) Tax-sheltered account plan D) HR 10 plan
A) Profit sharing plan
The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unavailable to lower-echelon employees. This plan would be funded with before-tax corporate dollars, and it does not meet government approval standards. This annuity plan is A) Illegal B) A nonqualified annuity plan C) An executive annuity plan D) Subject to government standards
B) A nonqualified annuity plan
Employer contributions made to a qualified plan A) Are after-tax contributions. B) Are taxed annually as salary. C) Are subject to vesting requirements. D) May discriminate in favor oh highly paid employees.
C) Are subject to vesting requirements.
Which of the following applicants would NOT qualify for a Keogh Plan? A) Someone who is over 25 years of age. B) Someone who works for a self-employed individual C) Someone who works 400 hours per year D) Someone who has been employed for more than 12 months
C) Someone who works 400 hours per year A person must have worked at least 1,000 hours per year
All of the following are characteristics of a group life insurance plan EXCEPT A) A minimum number of participants is required in order to underwrite the plan. B) The cost of the plan is determined by the average age of the group. C) There is a requirement to prove insurability on the part of the participants. D) The participants receive a Certificate of Insurance as their proof of insurance.
C) There is a requirement to prove insurability on the part of the participants.
An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his A) Experience Rating. B) Group Rate. C) Insurer's scheduled rate. D) Attained Age.
D) Attained Age.
Which of the following is an IRS qualified retirement program for the self-employed? A) Split Dollar B) Buy and Sell Agreement C) 401(k) D) Keogh
D) Keogh
TRUE OR FALSE: The Life Settlement Provider is NOT a person (other than the owner) who enters into a life settlement contract with the owne.
FALSE
TRUE OR FALSE: Traditional IRA Starting at age 70 1/2, the owner must receive at least a minimum annual amount, known as the required minimum distribution (RMD)
FALSE The SECURE Act of 2019 raised the required minimum distribution age from 70 1/2 to 72.
TRUE OR FALSE: When converting from group life to individual life insurance, evidence of insurability is not required.
TRUE
TRUE OR FALSE: 403(b) plans are for nonprofits and public-school systems.
TRUE
TRUE OR FALSE: Group life insurance is issued to the sponsoring organization, and covers the lives of more than one individual member of that group.
TRUE
In group life policies, a certificate of insurance is given to A) The policyholder to keep on file. B) Each insured person. C) The group sponsor. D) The insurance producer.
B) Each insured person.
An IRA purchased by a small employer to cover employees is known as a A) 401(k) plan. B) Defined contribution plan. C) 403(b) plan. D) Simplified Employee Pension plan.
D) Simplified Employee Pension plan.
All of the following are examples of third-party ownership of a life insurance policy EXCEPT A) An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. B) An insured couple purchases life insurance policy insuring the life of their grandson. C) A company purchases a life insurance policy on their manager, who is an important part of the operation. D) When an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company.
A) An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.
Who is a third-party owner? A) A policyowner who is not the insured B) An insurer who issues a policy for two people C) An employee in a group policy D) An irrevocable beneficiary
A) A policyowner who is not the insured
What type of life insurance is most commonly used for group plans? A) Annually renewable term B) Whole life C) Flexible premium whole life D) Decreasing term
A) Annually renewable term
If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may A) Require evidence of insurability. B) Require a higher premium. C) Prolong the open enrollment period. D) Increase medical requirements on existing members.
A) Require evidence of insurability.
An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer? A) $10,000, tax on growth only B) $10,000, no tax consequence C) $8,000, no tax consequence D) $8,000, tax on growth only
B) $10,000, no tax consequence
An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize? A) Change of beneficiary B) Viatical Settlement C)Estate Liquidation D) Nonpayment of premium
B) Viatical Settlement
All of the following would be different between qualified and nonqualified retirement plans EXCEPT A) Taxation of contributions B) IRS approval requirements C) Taxation on accumulation D) Taxation of withdrawals
C) Taxation on accumulation
Which type of retirement account does not require the owner to start taking distributions at age 72? A) Nonqualified IRA B) Standard IRA C) Traditional IRA D) Roth IRA
D) Roth IRA
TRUE OR FALSE: Executive bonus 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. The employee owns the policy and therefore has all control.
TRUE
TRUE OR FALSE: Group Insurance If the insured dies during the conversion period, a death benefit equal to the maximum amount of individual insurance which would have been issued must be paid by the group policy, whether or not the application for an individual policy was completed.
TRUE
An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy? A) She must apply for a new policy, which requires her to provide proof of insurability. B) She can covert her group policy into an individual policy without proof of insurability within 31 days of leaving the group plan. C) She will still be covered under the group plan, but will have to pay an individual policy premium. D) She can only convert her coverage without proof of insurability if she has the master policy.
B) She can covert her group policy into an individual policy without proof of insurability within 31 days of leaving the group plan.
Which of the following statements about group life is correct? A) The policy can be converted to an individual term insurance policy. B) The cost of coverage is based on the ratio of men and women in the group. C) The premiums are higher than in an individual policy because there is no medical exam. D) The group sponsor receives a Certificate of Insurance.
B) The cost of coverage is based on the ratio of men and women in the group.
All of the following statements concerning an employer sponsored nonqualified retirement plan are true EXCEPT A) The plan can discriminate as to who may participate. B) The plan is not approved for favorable tax treatment by the IRS. C) The employer can receive a current tax deduction for any contributions made to the plan. D) The plan is a legal method of accumulating money for retirement needs.
C) The employer can receive a current tax deduction for any contributions made to the plan.
In a direct rollover, how is the money transferred from one plan to the new one? A) Trustee to Trustee B) Trustee to the participant C) Participant to the new plan D) Original plan to the original custodian
A) Trustee to Trustee
Which of the following would be considered a nonqualified retirement plan? A) Roth IRA B) Split-dollar plan C) 401(K) D) Keogh plan
B) Split-dollar plan
Who can make a fully deductible contribution to a traditional IRA? A) An individual not covered by an employer-sponsored plan who has earned income. B) Anybody: all IRA contributions are fully deductible regardless of income level C) Someone making contributions to an educational IRA D) A person whose contributions are funded by a return on investment
A) An individual not covered by an employer-sponsored plan who has earned income.
Traditional IRA contributions are A) Tax deductible. B) Deducted based on the income level. C) Never tax deductible. D) Partially tax deductible depending on the income level.
A) Tax deductible.
TRUE OR FALSE: Profit-sharing plans are qualified plans where a portion of the company's profit is contributed to the plan and shared with employees
TRUE
TRUE OR FALSE: Life Settlement Contract establishes the terms under which the life settlement provider will pay compensation to the policyowner, in return for the assignment, transfer sale, or release of other benefits.
TRUE
TRUE OR FALSE: Modified Endowment Contracts 7th Pay Test turns becomes a MEC and remains a MEC. If the insurance policy fails a 7-pay test is then classified.
TRUE
TRUE OR FALSE: SIMPLE Plans A SIMPLE Plan is available to small businesses that employ no more than 100 employees who receive $5,000 in compensation from the employer during the previous year, and has not had a qualified plan already in place.
TRUE
TRUE OR FALSE: Traditional IRA If a married couple could contribute a specified amount that is double the individual amount, even if only one person had earned income. Each spouse is required to maintain a separate account not exceeding the individual limit.
TRUE
True or False: Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection.
TRUE
Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated? A) Those who have been insured under the plan for at least 5 years B) Those who have worked in the company for at least 3 years C) Those who have dependents D) Those who have no history claims
A) Those who have been insured under the plan for at least 5 years
Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose A) 401(k) plan. B) HR-10 (Keogh Plan). C) Section 457 Deferred Compensation Plan. D) 403(b) plan.
B) HR-10 (Keogh Plan) HR-10 are plans specifically for self-employed and their employees.
Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors? A) Life Expectancy B) Mortality Rate C) Risk Exposure D) Morbidity
A) Life Expectancy
Which of the following is NOT true of life settlements? A) They involve insurance policies with large face amounts. B) The seller must be terminally ill. C) They could be used for a key person coverage. D) They could be sold for an amount greater than the current cash value.
B) The seller must be terminally ill.
All of the following are general requirements of a qualified plan EXCEPT A) The plan must be for the exclusive benefit of the employees and their beneficiaries. B) The plan must be permanent, written and legally binding. C) The plan must provide an offset for social security benefits. D) The plan must be communicated to all employees
C) The plan must provide an offset for social security benefits.
Which of the following is TRUE of a qualified plan? A) It does not need to have a vesting schedule. B) It may discriminate in a favor of highly paid employees. C) It may allow unlimited contributions. D) It has a tax benefit for both employer and employee.
D) It has a tax benefit for both employer and employee.
What is the name of the insured who enters into a viatical settlement? A) Viator B) Third Party C) Contingent D)Viatical Broker
A) Viator
TRUE OR FALSE: Accelerated Benefits When accelerated benefits are paid under a life insurance policy to a terminally ill insured, the benefits are received tax free. When accelerated benefits are paid to a chronically ill insured, these benefits are tax free up to a certain limit.
TRUE
TRUE OR FALSE: Buy-Sell agreements In the event of an individual owner or a partner's death, the business must be sold in order to settle the deceased's estate.
TRUE
TRUE OR FALSE: Under a 401(k) plan, participants may choose to either receive taxable cash compensation or have the money contributed into the 401(k), referred to as cash or deferred arrangement plans (CODA).
TRUE