Ch 4
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
If a company has a Simplified Employee Pension plan, what type of plan is it?
A qualified plan for a small business
In a single employer group plan, what is the name of the policy issued to the employer?
Master contract
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.
Which of the following is the best reason to purchase life insurance rather than annuities?
To create an estate
An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?
A portion of the benefit up to a limit is tax free; the rest is taxable income.
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
When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?
Interest only
Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT?
SEPs are suitable for large companies
The minimum number of credits required for partially insured status for Social Security disability benefits is
6 credits
All of the following would be eligible to establish a Keogh retirement plan EXCEPT
The president and employee of a family corporation
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
Which of the following statements concerning buy-sell agreements is true?
Buy-sell agreements are normally funded with a life insurance policy
All of the following employees may use a 403(b) plan for their retirement EXCEPT
CEO of a private corporation
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.
SIMPLE Plans require all of the following EXCEPT
At least 1,000 employees.
In a direct transfer, how is money transferred from one retirement plan to a traditional IRA?
From trustee to trustee
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?
viatical settlement
All of the following would be different between qualified and nonqualified retirement plans EXCEPT
Taxation on accumulation
What is the purpose of key person insurance?
To minimize the risk of financial loss caused by the death of a key employee
All of the following are business uses of life insurance EXCEPT
funding against general company financial loss
If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually?
$3,000
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
