chapter 4 quiz

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

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

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

costs of training a replacement

Traditional IRA contributions are

tax deductible

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 is an example of liquidity in a life insurance contract?

the cash value available to the policyowner

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 withdrawal.

Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?

they are tax free to terminally ill insured

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

what percentage of a company's employees must take part in a noncontributory group life plan?

100%

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

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

In a direct rollover, how is the money transferred from one plan to the new one?

From trustee to trustee

Life insurance death proceeds are

Generally not taxed as income

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

HR-10 (Keogh Plan)

Which of the following is an eligibility requirement for all Social Security Disability Income benefits?

Have attained fully insured status

An IRA purchased by a small employer to cover employees is known as a

Simplified Employee Pension plan

Which of the following applicants would NOT qualify for a Keogh Plan?

Someone who works 400 hours per year

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as

Survivor protection

If a company has a Simplified Employee Pension plan, what type of plan is it?

a qualified plan for a small business

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

attained age

Which of the following terms is used to name the non taxed return of unused premiums

dividend

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

employees

All of the following statements are true regarding tax-qualified annuities EXCEPT

employer contributions are not tax deductible

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

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.

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a

settlement option

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

tax deductible by the employer

All of the following 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

Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy?

the employer is the owner and beneficiary

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

Social Security was created to provide all of the following benefits EXCEPT

unemployment income

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

What is the name of the insured who enters into a viatical settlement

viator

Which of the following types of insurance policies would perform the function of cash accumulation?

whole life

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 a(n)

403(b) Plan (TSA)

To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters?

6 credits

Employer contributions made to a qualified plan

Are subject to vesting requirements

All of the following are personal uses of life insurance EXCEPT

Buy-sell agreement

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

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 non qualified annuity plan

which of the following is TRUE of a qualified plan?

it has a tax benefit for both employer and employee

In a single employer group plan what is the name of the policy issued to the employer?

master contract

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an

modified endowment contract

All of the following would be eligible to establish a Keogh retirement plan EXCEPT

the president and employee of a family corporation

Which of the following is NOT true of life settlements?

the seller must be terminally ill

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?

life expectancy

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

the earnings in the plan accumulate tax deferred

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?

Profit Sharing plan

All of the following benefits are available under Social Security EXCEPT

Welfare benefits

Which of the following statements is TRUE concerning whole life insurance?

Lump-sum death benefits are not taxable

all of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

the policy is owned by the company

Which of the following best defines the "owner" as it pertains to life settlement contracts?

the policy owner of the life insurance policy

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

not subject to income taxation by the Federal Government

all of the following statements are true regarding group insurance EXCEPT

participants in the policy each receive a policy

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

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

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

the employees receive individual policies

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?

withdrawals are not taxable