MD Life License Chapter 2: Life Insurance Basics
Both life and health insurance can be used for a variety of purposes in a business setting, including
the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees
A collateral assignment is
the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership.
What is a true statement concerning buy-sell agreements?
they are normally funded with a life insurance policy.
When accelerated benefits are paid under a life insurance policy,
they are received tax free by terminally ill insured, and tax free up to a limit for chronically ill insured
The employee usually has a period of __________ days after terminating from the group in order to exercise the conversion option.
31
What is the number of credits required for fully insured status for Social Security disability benefits?
40
If the master contract is terminated, every individual who has been on the plan for at least ____________ years will be allowed to convert to individual insurance of the same converage
5
A claimant, who is totally and permanently disabled, is eligible for Social Security Disability benefits after an elimination period of
5 months
The minimum number of credits required for partially insured status for Social Security disability benefits is
6 credits
A participant contributes more than the maximum amount to her Roth IRA. What kind of tax penalty will he or she have to pay?
6%
What is the required number of participants in a contributory group plan?
75%
Who may contribute to an HR-10 plan?
Self-employed plumber
The premiums paid by the employer in a business life insurance policy are
Tax deductible by the employer
The advantage of qualified plans to employers is
Tax-deductible contributions
Key person insurance
With this coverage the key employee is the insured, and the business is the applicant, policyowner, premium payer and beneficiary
Can a worker receive Social Security retirement benefits before age 65?
Yes, the qualifying worker can receive reduced benefits at age 62
In order to qualify for small group life insurance,
a group must be formed for a purpose other than attaining life insurance.
Nonqualified plans are
a perfectly legal way for selected employees to receive certain types of benefits
What is the 403(b) Tax Sheltered Annuities
a qualified plan available to employees of certain nonprofit organizations, education, religious organizations and other 503c organizations
Simplified Employee Pensions (SEP)
a type of qualified plan suited for the small employers or for self-employed
In group life insurance premiums are determined by
age, sex and occupation
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
SIMPLE Plans is available to
small business that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year
The term "fully insured" refers to
someone who has earned 40 quarter of coverage (10 years of work times 4 maximum annual credits)
What percentage of a company's employees must take part in a noncontributory group life plan?
100%
A person must have worked at least _____________ hours per year to be eligible for a Keogh Plan
1000
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is
A modified Endowment Contract
Under the 401(k) bonus or thrift plan, the employee will contribute
An undetermined percentage for each dollar contributed by the employee.
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
If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insure may
Require evidence of insurabiligy.
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
What is a true regarding taxation of cash value in a life insurance policy?
Cash value in excess of the premiums paid is taxed upon policy surrender
A tax-sheltered annuity is a special tax-favored retirement plan available to
Certain groups of employees only
In group life policies, a certificate of insurance is given to
Each insured person
What qualifies an individual to contribute to an IRA
Earned income
When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called
Executive Bonus
Jane is eligible for full death, retirement, and disability benefits under Social Security. Her worker status with Social Security is
Fully insured
An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. What will happen if he's not at least 59 1/2 years old?
He will have to pay a penalty
What is the main purpose of the Seven-pay Test?
It determines if the insurance policy is an MEC
If a retirement plan or annuity is "qualified," this means
It has favorable tax treatment
What is a true statement concerning whole life?
Lump-sum death benefits are not taxable
In a single employer group plan, what is the name of the policy issued to the employer?
Master contract
What is a primary difference between an IRA and an SEP?
Much more money can be contributed to a SEP
Two equal partners in a business worth $150,000 are using a cross purchase plan to protect against the death of each other. What would be a correct statement of how the policy would be purchased.
Partner A buys a policy on partner B in the amount of $75,000 naming Partner A as beneficiary.
What is a correct statement concerning the taxation of a Key Person Life insurance Policy premiums and death benefit?
Premiums are not deductible as a business expense and the death benefit is not taxable to the company.
When would a premium be tax deductible?
Premiums paid by an employer on a $30,000 group term life insurance plan for employees
An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized.
Profit sharing plan
Qualified distributions from a Roth IRA cannot be made until
The 5th year of the account's existence if the owner has reached age 50 1/2
Social Security is funded by a payroll tax imposed on a percentage of an employee's income. The percentage is called
The taxable wage base
What insurance arrangements would be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner
Third-party ownership
When are "catch-up" contributions allowed in an IRA?
When the contributor reaches the age of 50
A 403(b) plan (TSA) is designed for
certain tax exempt employers in order that they may provide a retirement plan for its employees.
Non qualified retirement plans do not meet the IRS requirements for
favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS
executive bonus
is 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.
Are policy loans tax deductible
no
Social Security provides three types of benefits:
retirement, disability and survivors
Keogh plans are for
self-employed individuals and their employees