ExamFX Life Insurance (Taxes, Retirement, and Other Insurance Concepts)

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?

$10,000 --No tax consequence.

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?

$3,000

If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for 10 years, which of the following would be taxable.

$3,000

Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT?

100% participation of members is required in noncontributory plans.

What is the number of credits required for fully insured status for Social Security disability benefits

40.

An internal revenue code provision that specifically provides for an individual retirement plan for public school teachers is an

403B Plan (TSA)

In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?

5 years

The minimum number of credits required for partially insured status for Social Security disability benefits is

6 credits.

Which of the following is the required number of participants in a contributory group plan?

75%

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 standard approval. This annuity plan is...

A nonqualified annuity plan

Who is a third-party owner?

A policyowner who is not the insured.

Who can make a fully deductible contribution to a traditional IRA?

An individual not covered by an employer-sponsored plan who has earned income.

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 part of the death benefit to secure the loan.

What type of insurance policy may be used to fund a buy-sell agreement?

Any form of life insurance.

All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT:

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

All of the following requirements of eligibility for Social Security disability income benefits EXCEPT:

Being 65.

Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount?

Buy-sell agreement

A key person insurance policy can pay for which of the following?

Costs of training a replacement.

Which of the following terms is used to name the nontaxed return of unused premiums?

Dividends

For a retirement plan to be qualified, it must be designed for the benefit of...

Employees

When an employee terminates coverage under a group insurance policy, coverage continues in force...

For 31 days.

In life insurance polices, cash value increases

Grow tax deferred

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income.

Interest only

What is the main purpose of the Seven-Pay Test?

It determines if the insurance policy is a MEC

Which of the following is not true regarding policy loans?

Money borrowed from cash value is taxable.

Death benefits payable to a beneficiary under a life insurance policy are generally

Not subject to income taxation by the Federal Government

Death benefits payable to a beneficiary under a life insurance policy are generally...

Not subject to income taxation by the Federal Government.

What is the official name for the Social Security Program?

Old Age Survivors Disability Income (OASDI)

Traditional IRA contributions are tax deductible based on which of the following?

Owner's income

Which of the following would be considered a nonqualified retirement plan?

Split-Dollar Plan

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?

The insured may choose to convert to term or permanent individual coverage.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct except:

The policy is owner by the company (owned by the employee)

If a retirement plan or annuity is "qualified", this means

It is approved by the IRS

If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?

It is only taxable if the cash value exceed the amount paid for premiums.

All of the following are characteristics of group life insurance EXCEPT:

Premiums are determined by the age, sex and occupation of each individual certificate holder. (They are determined by the entire group)

What is the primary purpose of a 401K Plan

Retirement

The premiums paid by the employer in a business life insurance policy are...

Tax deductible by the employer

All of the following would be different between qualified and nonqualified retirement plans EXCEPT:

Taxation on accumulation.

Which of the following describes the tax advantage of a qualified retirement plan?

The earnings in the plan accumulate tax deferred

Which of the following is INCORRECT concerning a non contributory group plan?

The employees receive individual polices.

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

The employees receive individual policies

All of the following statements statements concerning an employer sponsored nonqualified retirement plan are true except:

The employer can receive a current tax deduction for any contributions made to the plan.

An employee quits his job on May 15th and doesn't covert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen?

The insurer will pay the full death benefit from the group policy to the beneficiary.

All of the following are true of a key person insurance EXCEPT:

The plan is funded by permanent insurance only

All of the following are general requirements of a qualified plan EXCEPT:

The plan must provide an offset for social security benefits.

Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner?

Third-party ownership.

What is the purpose of key person insurance?

To lessen the risk of financial loss because of the death of a key employee.

All of the following benefits are available under Social Security EXCEPT:

Welfare Benefits

Employer contributions made to a qualified plan

are subject to vesting requirements

A corporation is the owner and the beneficiary of the key person life policy. If the corporation collects the policy benefit,

then the benefit is received tax free.