Taxes, Retirement, and Other Insurance Concepts
10: Which of the following terms is used to name the nontaxed return of unused premiums? A Dividend B Premium return C Interest D Surrender
A
15: Which of the following is NOT true of life settlements? A The seller must be terminally ill. B They could be used for a key person coverage. C They could be sold for an amount greater than the current cash value. D They involve insurance policies with large face amounts.
A
1: 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 $8,000, no tax consequence B $8,000, tax on growth only C $10,000, tax on growth only D $10,000, no tax consequence
D
13: If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a A Settlement option. B Nontaxable exchange. C Nonforfeiture option. D Rollover.
A
11: An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true? A He will not have to pay a penalty, regardless of his age. B He cannot withdraw money from his MEC before age 59½. C He will have to pay a penalty if he is younger than 59½. D He will have to pay a penalty regardless of his age.
C
12: 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 Nonpayment of premium B Change of beneficiary C Viatical settlement D Estate liquidation
C
14: Which of the following is an IRS qualified retirement program for the self-employed? A Buy-sell agreement B 401(k) plan C Keogh plan D Split dollar
C
3: 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 would not need to prove insurability for a conversion policy. B The insured may convert coverage to an individual policy within 31 days. C The premium for individual coverage will be based upon the insured's attained age. D The insured may choose to convert to term or permanent individual coverage.
D
10: Death benefits payable to a beneficiary under a life insurance policy are generally A Exempt from income taxation if over $10,000. B Not subject to income taxation by the Federal Government. C Subject to income taxation by the Federal Government. D Exempt from income taxation if under $10,000.
B
12: All of the following are examples of third-party ownership of a life insurance policy EXCEPT A When an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company. B An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. C An insured couple purchases a life insurance policy insuring the life of their grandson. D A company purchases a life insurance policy on their manager, who is an important part of the operation.
B
13: Who can make a fully deductible contribution to a traditional IRA? A A person whose contributions are funded by a return on investment B An individual not covered by an employer-sponsored plan who has earned income C Anybody; all IRA contributions are fully deductible regardless of income level D Someone making contributions to an educational IRA
B
1: All of the following are characteristics of group life insurance EXCEPT A certificate holders may convert coverage to an individual policy without evidence of insurability. B Premiums are determined by the age, sex and occupation of each individual certificate holder. C Amount of coverage is determined according to nondiscriminatory rules. D Individuals covered under the policy receive a certificate of insurance.
B
3: All of the following statements are true regarding tax-qualified annuities EXCEPT A Withdrawals are taxed. B Employer contributions are not tax deductible. C Annuity earnings are tax deferred. D They must be approved by the IRS.
B
4: Which of the following is NOT true regarding a nonqualified retirement plan? A Earnings grow tax deferred. B It needs IRS approval. C Contributions are not currently tax deductible. D It can discriminate in benefits and selecting participants.
B
5: All of the following are general requirements of a qualified plan EXCEPT A The plan must be permanent, written and legally binding. B The plan must provide an offset for social security benefits. C The plan must be communicated to all employees. D The plan must be for the exclusive benefits of the employees and their beneficiaries
B
5: If a company has a Simplified Employee Pension plan, what type of plan is it? A An undefined contribution plan for large businesses B A qualified plan for a small business C The same as a 401(k) plan D The same as an IRA, with the same contribution limits
B
6: All of the following benefits are available under Social Security EXCEPT A Death benefits. B Welfare benefits. C Old-age and retirement benefits. D Disability benefits.
B
6: 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 HR 10 plan B Profit sharing plan C 401(k) plan D Tax-sheltered account plan
B
6: Life insurance death proceeds are A Taxed as ordinary income. B Generally not taxed as income. C Taxable to the extent that they exceed 7.5% of the beneficiary's adjusted gross income. D Taxed as a capital gain.
B
7: 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 premium for individual coverage will be based upon the insured's attained age. B The insured may choose to convert to term or permanent individual coverage. C The insured would not need to prove insurability for a conversion policy. D The insured may convert coverage to an individual policy within 31 days.
B
13: When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income? A Neither principal nor interest B Principal only C Interest only D Both principal and interest
C
2: Which of the following is TRUE of a qualified plan? A It may discriminate in favor of highly paid employees. B It may allow unlimited contributions. C It has a tax benefit for both employer and employee. D It does not need to have a vesting schedule.
C
6: Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE? A Policy loans are taxable distributions. B Accumulations are tax deferred. C Withdrawals are not taxable. D Distributions before age 59 1/2 incur a 10% penalty on policy gains
C
7: Social Security was created to provide all of the following benefits EXCEPT A Disability income. B Retirement income. C Unemployment income. D Survivor's benefits.
C
10: 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? A No taxes are due since the plan participant is over age 59 1/2. B There is a 10% early withdrawal penalty. C The amount distributed is subject to ordinary income tax. D The amount of the distribution is reduced by the amount of a 20% withholding tax
D
10: A tax-sheltered annuity is a special tax-favored retirement plan available to A Anyone. B Certain age groups only. C Certain groups depending on factors such as race, gender, and age. D Certain groups of employees only
D
11: 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? A An irrevocable beneficiary B A buy-sell agreement C Family term rider D Third-party ownership
D
12: All of the following employees may use a 403(b) plan for their retirement EXCEPT A A school bus driver. B A part-time classroom aide. C The vice president of a charitable organization. D The CEO of a private corporation.
D
12: Employer contributions made to a qualified plan A May discriminate in favor of highly paid employees. B Are after-tax contributions. C Are taxed annually as salary. D Are subject to vesting requirements
D
13: Which of the following is NOT true regarding policy loans? A Policy loans can be repaid at death. B An insurer can charge interest on outstanding policy loans. C A policy loan may be repaid after the policy is surrendered. D Money borrowed from the cash value is taxable
D
1: Which of the following applicants would NOT qualify for a Keogh Plan? A Someone who has been employed for more than 12 months B Someone who is over 25 years of age C Someone who works for a self-employed individual D Someone who works 400 hours per year
D
14: All of the following would be different between qualified and nonqualified retirement plans EXCEPT A Taxation on accumulation B Taxation of withdrawals C Taxation of contributions D IRS approval requirements
A
8: If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an A Modified endowment contract. B Accelerated benefit policy. C Endowment. D Nonqualified annuity.
A
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 HR-10 (Keogh Plan). B Section 457 Deferred Compensation Plan. C 403(b) plan. D 401(k) plan.
A
