FL 2-15 Chapter 4 Practice Questions
What percentage of a company's employees must take part in a noncontributory group life plan?
100%
What is the number of credits required for fully insured status for Social Security disability benefits?
40
The minimum number of credits required for partially insured status for Social Security disability benefits is
6 credits.
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 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.
What type of life insurance is most commonly used for group plans?
Annually renewable term
Employer contributions made to a qualified plan
Are subject to vesting requirements.
All of the following are requirements of eligibility for Social Security disability income benefits EXCEPT
Being age 65.
A life insurance policy used to fund an agreement that contractually establishes the intent of someone to purchase a business upon the insured business owner's death is a
Buy-sell agreement.
Which of the following terms is used to name the nontaxed return of unused premiums?
Dividend
In group life policies, a certificate of insurance is given to
Each insured person.
For a retirement plan to be qualified, it must be designed for the benefit of
Employees.
Life insurance death proceeds are
Generally not taxed as income.
In life insurance policies, 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
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 Insurance
Traditional IRA contributions are tax deductible based on which of the following?
Owner's income
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?
Premiums are not tax deductible as a business expense.
In which of the following instances would the premium be tax deductible?
Premiums paid by an employer on a $30,000 group term life insurance plan for employees
Which type of retirement account does not require the owner to start taking distributions at age 73?
Roth IRA
Who may contribute to a Keogh (HR-10) plan?
Self-employed plumber
Which of the following applicants would NOT qualify for a Keogh Plan?
Someone who works 400 hours per year
All of the following would be different between qualified and nonqualified retirement plans EXCEPT
Taxation on accumulation
All of the following employees may use a 403(b) plan for their retirement EXCEPT
The CEO of a private corporation.
A 60-year-old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true?
The amount of the distribution is reduced by the amount of a 20% withholding tax.
In a life settlement contract, whom does the life settlement broker represent?
The owner
All of the following are true of 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.
All of the following are characteristics of a group life insurance plan EXCEPT
There is a requirement to prove insurability on the part of the participants.
Social Security was created to provide all of the following benefits EXCEPT
Unemployment income.
All of the following benefits are available under Social Security EXCEPT
Welfare benefits.
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
When the owner of a $250,000 life insurance policy died, the beneficiary decided to leave the proceeds of the policy with the insurance company and selected the Interest Settlement Option. If at the time of withdrawal the interest paid was $11,000, the beneficiary would be required to pay income tax on
$11,000.
SIMPLE Plans require all of the following EXCEPT
At least 1,000 employees.
A tax-sheltered annuity is a special tax-favored retirement plan available to
Certain groups of employees only.
An employee is joining a group insurance plan. In order to avoid having to prove insurability, what must the employee do?
Join during the open enrollment period
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then
The benefit is received tax free.
Which of the following statements about group life is correct?
The cost of coverage is based on the ratio of men and women in the group.
An employee quits his job on May 15 and doesn't convert 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.
Which of the following best defines the "owner" as it pertains to life settlement contracts?
The policyowner of the life insurance policy
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.
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
In terms of Social Security, what is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called?
Blackout Period
Social security benefits are available for a surviving spouse until the youngest child reaches age 16. Benefits are again available for the spouse after reaching age 60. What is the time period called during which the surviving spouse does not receive benefits?
Blackout period
When an employee terminates coverage under a group insurance policy, coverage continues in force
For 31 days.
If taken as a lump sum, life insurance proceeds to beneficiaries are passed
Free of federal income taxation.
If an insured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is
Fully insured.
Which of the following is an eligibility requirement for all Social Security Disability Income benefits?
Have attained fully insured status
Which of the following is TRUE of a qualified plan?
It has a tax benefit for both employer and 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 exceeds the amount paid for premiums.
Which of the following is NOT an example of a business use of Life Insurance?
Workers Compensation
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
Which of the following is the best reason to purchase life insurance rather than an annuity?
To create an estate
What is the purpose of key person insurance?
To lessen the risk of financial loss because of the death of a key employee
Which of the following is NOT true of life settlements?
The seller must be terminally ill.
How are contributions to a tax-sheltered annuity treated with regards to taxation?
They are not included as income for the employee, but are taxable upon distribution.