Insurance License
How much are excess contributions in a traditional IRA taxed
6% as long as they remain in the IRA
When must an individual start receiving payments from their traditional IRA
73
When do payouts for traditional IRA's begin?
73, but you can withdraw at 59 1/2 without penalty
Buy-Sell Agreement
A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.
Survivor protection
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
Qualified retirement plan
A retirement savings plan approved by the IRS that provides individuals and businesses with TAX BENEFITS
cross-purchase plan
An agreement that provides that upon a business owner's death, surviving owners will purchase the deceased share of the company.
LIFO
Annuities follow this. Get gains first (which are taxable)
The death benefit is not income taxable but...
Any interest earned is
Cross purchase plan
Business partners purchase insurance on each others lives
Conversion Privilege
Clause in a group insurance policy that allows the insured to continue the same or lesser coverage under an individual policy if they leave the group insurance. They dont need to prove insurability and get it at a standard rate
Agent/producers first major role in transacting insurance?
Completing the application and delivering the policy
Are partial surrenders taxable?
FIFO
What allows self employed individuals to have a retirement plan?
HR-10 or Keogh plans
Are policy death benefits taxable?
No (same as individual)
Who is the policy owned by in a Executive bonus?
The employee
T of F lump sum payments to the beneficiary are tax free
True
Absolute assignment
all ownership rights in the policy are transferred to a new owner
executive bonus
an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee
Surrenders (life insurance)
canceling your life insurance policy and receiving a payout
Roth IRA
distributions do not have to begin at a specific age; contributions are NOT tax-deductible; earnings are tax-free after 5 years
What are some ways life insurance policyholders can get living benefits?
dividends, cash value accumulations, policy loans
Contributory
employer and employees share the cost of premium; requires 75% participation
FIFO
only applied to life insurance, policyowner receives their investment in the contract first before receiving any gains in the policy (or being taxed on those gains)
Contributory plan
premiums are shared between employer and employee (75% of eligible employees are included)
What is the penalty from withdrawing from a Traditional IRA
prior to age 59 1/2, its a 10% additional tax
Qualified plans
- Approved by the IRS - tax Benefits for employers and employees - must be permanent and have a vesting requirement - Cannot Discriminate in favor of the prohibited group
Examples of when a business pays for premiums and they are NOT deductible
- key employee - stock redemption of entity purchase agreement - split dollar insurance (or really anytime a business is named the beneficiary of a life insurance policy or has a beneficial interest in the policy
MECs (Modified Endowment Contracts) cash value
- tax deffered accumulations - any distributions are taxable - distributions are on a LIFO basis - Distributions before age 59 1/2 have a 10% penalty
Under what conditions can you withdraw from a traditional IRA without being taxed 10%
-Over 59 1/2 -totally disabled -need less than 10,000 for a downpayment on a home -education -medical expenses
How long does an employee have to convert to individual life insurance after leaving a group insurance
31 days
How long does coverage last after an employee has terminated their coverage under a group insurance policy?
31 days
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
To be considered currently or partially insured, how many credits should have individual have earned in the last 13-quarter period?
6 credits
nonqualified retirement plan
Dont require government approval, can dirscriminate, tax deferred, usually for higher paid employees,
split dollar insurance
Employer and employee each pay part of a premium for life insurance on the employee's life, makes additional insurance coverage cheaper
In the executive bonus plan, who is the owner of the policy and who pays the premium?
Executive is the owner and executive pays the premium
403(b) Plan Tax Sheltered Annuity (TSA)
FOR NONPROFITS: Under a 403(b) plan, tax-sheltered annuities may be established for the employees of specified nonprofit charitable, educational, religous and other 501c(3) organizations, including teachers in public school systems.
T or F when converting from group insurance to individual insurance evident of insurability is needed
False, evidence of insurability is not needed when converting from a group life insurance policy to an individual life insurance policy
When is the death benefit tax free?
If taken as a lump sum distribution to a beneficiary, the principle is tax free
When can an individual attain a currently insured status?
If they have earned 6 credits (a year and a half of work)
Immediate Annuity v. Deferred Annuity
Immediate: A Life Annuity contract where the first pay-out is made within 12 months after it is purchased. Can only be purchased with a single premium/lump-sum payment. Deferred: A Life Annuity contract where the first pay-out is made 12 months after it is purchased. Can be purchased with either a single premium or with continuous premium payments.
When a policyowner cash surrenders a policy for cash value when is the cash surrender considered taxable
It is only considered taxable when the cash surrender exceeds the amount of premiums paid for the policy
Are dividends taxable?
NO, because they are a return of unused premiums. However, the INTEREST on dividends is taxable
Are policy loans taxable to businesses?
No (under $50,000)
When do payouts for ROTH IRA's begin?
No minimum age
T or F group life insurance can convert to term insurance
No, any other insurance but term (usually whole life)
Are lump sum death benefits taxable?
Not income taxable
Are policy loans taxable?
Not income taxable
Are premiums taxable
Not tax deductible
Are policy dividends taxable?
Not taxable
Adhesion
One person prepares the contract and the other party must accept it as it is
Savings Incentive Match Plan for Employees (SIMPLE)
Plan for small businesses with less than 100 people who receive at least $5000 a year, tax deferred, matched by employer up to 3%
Profit sharing plans
Plans that distribute a portion of an organization's profits to its employees.
Tax deductible
Pre-tax $$
Most common retirement plans
Roth IRA, Traditional IRA
Is the key person life policy taxed (ex. corporation is the owner and beneficiary of the key person policy. If the corporation collects the benefit...)
Should a key person die the benefit is treated as a reimbursement to the business for loss of services from that key person
Attending Physician Statement
Statement from physician detailing an applicant medical history
What are personal uses of life insurance?
Survivor protection, estate creation and conservation, cash accumulation and liquidity
What is an advantage of a qualified plan?
Tax-deductible contributions for employer, earnings accumulate tax deferred,
Are dividend interest taxable?
Taxable in the year earned
a 60 year old participant in a 401k plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true?
The amount of distribution is reduced by the amount of a 20% withholding tax
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
Why are roth IRAs tax free after 5 years?
The contributions are made from after-taxed income
Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy?
The employer is both the owner and beneficiary
Who is the owner and key person on a key person life insurance policy?
The employer is the owner and beneficiary
An employee quits his job on May 15 and doesn't convert his group policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. What will happen?
The insurer will pay the full death benefit from the group policy to the benficiary SINCE ITS WITHIN THE 31 DAY PERIOD
in a life settlement contract, who does the life settlement broker represent?
The owner
If an individual is entitled to medicare part A...
They are automatically entitled to medicare Part B but must pay a monthly premium
T or F Any distributions from MEC's are taxable (including withdrawals and policy loans)
True
T or F Policy loans from the cash value are NOT income taxable
True
T or F contributions into a Roth IRA are not tax deductible
True
T or F premiums are not tax deductible
True
Third Party Ownership
When a person(s) other than the insured purchases the insurance policy.
When does a health insurance policy typically become effective?
When the application is approved and the policy has been issued
Are cash value exceeding premiums paid taxable
Yes, at surrender
Are PREMIUMS the employer pays for life insurance on an employee taxable?
Yes, they are tax deductible to the employer as a business expense ($50,000 or less)
401(k) plan
a tax-deferred investment and savings plan that acts as a personal pension fund for employees
Traditional IRA
an individual retirement account that allows individuals to contribute pre-tax income to investments that grow tax deferred REGARDLESS OF AGE
What is a Modified Endowment Contract (MEC)?
an overfunded life insurance policy that failed the 7-pay test. Established by the IRS to curtail entities using life insurance just for tax advantages
Group life insurance is written as
annually renewable term insurance
SImilarity between qualified and nonqualified retirement plans
both have taxation on accumulation deferred
Universal life insurance policy
incorporates flexible premiums and an adjustable death benefit. The investment gains from a Universal Life Policy usually go toward the cash value. The policyowner can use the cash value to manipulate the flexible aspects of a universal life insurance policy. A customer who wants a policy that gives them the most options and the most control would be looking for a Universal Life Policy. Universal policies use gains to fund the cash value and give the policyowner options for flexible premiums and adjustable death benefits.
Family term rider
incorporates the spouse term rider along with the children's term rider in a single rider
Conversion
no evidence of insurability (within 30-31 days)
What is simplified employee pension (SEP)?
retirement plan for small employer or self employed where the employee has an individual retirement plan to which the employer contributes
noncontributory plan
retirement plan funded entirely by contributions from the employer employer receives master policy, and employees receive a certificate of insurance
Social security- fully insured
someone who has 40 quarters (10 years of work) is entitled to this, premium free medicare Part A, and survivor benefits
Are surrenders taxable?
surrender value- past premium = amount taxable
Describe accelerated benefits are for the terminally ill insured
tax free
rollover
tax free distribution of cash from one retirement plan to another (must be transferred within 60 days with 20% withheld OR direct rollover for the payor)
direct transfer
tax free transfer of funds directly from one trustee to another
Describe accelerated benefits for chronically ill insured
tax free up to a limit
What is an advantage of a qualified retirement plan?
the accumulated earnings are tax deferred
In group life insurance the master contract is for
the employer
Viatical Settlement
the sale of a life insurance policy by a terminally ill insured to another party, typically to investors or investor groups, who hope to profit by the insured's early death
social security is an entitlement program not a...
welfare program
Noncontributory plan
when an employer pays all of the premiums in a group insurance policy (100% of the eligible employees are included in the plan)
When is the only time accelerated benefits are tax free
when its paid to a terminally ill insured or a chronically insured (up to a certain amount)
Transfer of value
when the life insurance policy is sold to another party prior to the insureds death
