Some Tricky Questions Review (Life Insurance)
An employee with $25,000 group term life coverage was recently fired. This employee's group coverage may be converted to a: - $25,000 modified whole life policy - $25,000 individual term life policy - $25,000 individual whole life policy
$25,000 individual whole life policy
An individual working part time has an annual income of $25,000. If this individual has an IRA, what is the maximum deductible IRA contribution allowed? - No deduction allowed - $6,000 - $5,000
$6,000
Premature IRA distributions are assessed a penalty tax of: - 10% - 20%
10%
An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction? - Nothing - 20% is withheld for income taxes
20% is withheld for income taxes
What is the excise tax rate the IRS imposes on individuals aged 70.5 or older who do not take the required minimum distributions from their qualified retirement plan? - 30% - 40% - 50% - 60%
50%
An IRA owner can start making withdrawals and NOT be subjected to a tax penalty beginning at what age? - 59.5 - 70.5
59.5
How long does an individual have to "rollover" funds from an IRA or qualified plan? - 60 days - 90 days
60 days
Which of the following is NOT included in an annuity contract? - Nonforfeiture benefit - Free- Look period - Beneficiary - AD&D rider
AD&D rider
Which provision is NOT requirement in a group life policy? - Conversion - Grace period - Accidental
Accidental
The amount of monthly disability benefits payable under Social Security is affected by which of the following factors? - Nature of the disability - Amount of the benefits available from other sources
Amount of the benefits available from other sources
Traditional individual retirement annuity (IRA) distributions must start by: - April 1st of the year following the year the participant attains age 59.5 - April 1st of the year following the year the participant attains age 70.5
April 1st of the year following the year the participant attains age 70.5
What is considered to be a characteristic of an immediate annuity? - Benefit payments start within one payment period of purchase - Benefit payments start within 5 years of initial purchase - Periodical contributions begin immediately
Benefit payments start within one payment period of purchase
What type of employee welfare plans are not subject to ERISA regulations? - Church plans - Major medical plans - Corporate - Qualified Plans
Church plans
Which of the following does Social Security NOT provide benefits for? - Survivorship - Dismemberment
Dismemberment
An employee requested that the balance of her 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately has the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee? - Distribution is subject to federal income tax withholding - Distribution is subject to ordinary income tax
Distribution is subject to federal income tax withholding
Company Z has a Cross Purchase Buy-Sell Agreement in place among its three founding partners. If the agreement is funded with individual life insurance, what would it require? - Each partner must own a policy on the other partners - One policy is owned and paid for by the company
Each partner must own a policy on the other partners
Two partners own equal shares in a business worth a total of $1,000,000. If they both commit to the purchase of a life insurance policy that will fund a Buy-Sell Agreement, which of the following is TRUE? - Each partner owns a $500,000 policy on their partner's life. - Each partner owns a $500,000 policy on their own life.
Each partner owns a $500,000 policy on their partner's life.
Which of the following is an important underwriting principle of group life insurance? - Physical examinations are required - Everyone must be covered in the group - Employer must pay for the entire premium
Everyone must be covered in the group Kind of a trick question. An important underwriting principle of group life is that all OR a large percentage of persons in the group must be covered. But in this situation, the correct answer is everyone.
Which of these is NOT a source of funding for Social Security benefits? - Self employed individuals - Employees - Federal government - Employers
Federal government
The payments on Q's annuity are no less than $250 quarterly. Which of the following annuities does Q own? - Flexible Installment Deferred - Adjustable deferred
Flexible Installment Deferred
What is considered a valid reason for small businesses to insure the lives of its major shareholders? - Fund a buy-sell agreement - To provide an income for the surviving dependents
Fund a buy-sell agreement
Which of these retirement plans can be started by an employee, even if another plan is in existence? - IRA - 403(b) plan
IRA
Tom has a qualified retirement plan with his employer that is currently considered to be 80% "vested". How can this be interpreted? - If Tom's employment is terminated, 20% of the funds would be forfeited - If Tom's employment is terminated, 80% of the funds would be forfeited
If Tom's employment is terminated, 20% of the funds would be forfeited
An employer that offers a qualified retirement plan to its employees is eligible to: - avoid ERISA regulations - Make tax-deductible contributions to the plan
Make tax-deductible contributions to the plan
Which of the following is TRUE about a qualified retirement that is "top heavy"? - More than 50% of plan assets are in key employee accounts - More than 60% of plan assets are in key employee accounts
More than 60% of plan assets are in key employee accounts
If a corporation pays the premium on a group life policy for its employees, the corporation is required to report how much additional taxable income for each employee? - The entire premium paid - Half of the premium paid - Nothing
Nothing
Post-tax dollar contributions are found in: - Traditional IRA investments - Roth IRA investments
Roth IRA investments
Which of the following are Equity Indexed annuities typically invested in? - Corporate bonds - Money Market Accounts - Municipal Bonds - S&P 500
S&P 500
What does a 401(k) plan generally provide its participants? - Salary- deferral distributions - Salary- deferral contributions
Salary- deferral contributions
What type of contract liquidates an estate through recurrent payments? - Universal life insurance - whole life insurance - annuity - 401(k)
annuity
To be eligible for social security benefits, an employee must be unable to perform: - any occupation - his/her occupation
any occupation
In a qualified retirement plan, the yearly contributions to an employee's account: - are not tax-deductible - are restricted to maximum levels set by the IRS
are restricted to maximum levels set by the IRS
An employee of 20 years recently retired at age 59 1/2. This employee's group life contract can be: - converted to an individual permanent policy at an individual rate - converted to an individual permanent policy at a group rate - continued at an individual rate - continued at a group rate
converted to an individual permanent policy at an individual rate
How are Roth IRA distributions normally taxed? - taxed as ordinary income - distributions are received tax-free
distributions are received tax-free
When funds are shifted straight from one IRA to another IRA, what percentage of the tax is withheld? - 20% - none
none
The type of annuity that can be purchased with one monetary deposit is called a(n): - Single deposit annuity - Single premium annuity - Fixed annuity - Immediate annuity
Immediate annuity
All of the following statements regarding a Tax Sheltered Annuity (TSA) are true EXCEPT: - Income derived from the TSA is received income tax-free - TSA's are available to the public school employees - Contributions to the TSA are tax-deductible - Interest earned by TSA is tax deductible
Income derived from the TSA is received income tax-free
At the age of 45, an individual withdraws $50,000 from his Qualified Profit-Sharing Plan and then deposits this amount into a personal savings account. This action would result in: - Income tax and a 10%penalty assessed upon funds withdrawn from the Qualified Plan - Only a 10% penalty on the withdrawal of funds
Income tax and a 10%penalty assessed upon funds withdrawn from the Qualified Plan
A 55 year old recently received a $30,000 distribution from a previous employer's 401(k) plan, minus $6,000 withholding. Which federal taxes apply if none of the funds were rolled over? - Income taxes plus a 10% penalty tax on $30,000 - Income taxes plus a 10% penalty tax on $24,000
Income taxes plus a 10% penalty tax on $30,000
Which of these statements concerning an Individual Straight Life annuity is accurate? - Life expectancy of the annuitant is not a factor - Payments are made to an annuitant for life
Payments are made to an annuitant for life
A retirement plan that sets aside part of the company's net income for distributions to qualified employees is called a: - 403(b) plan - profit-sharing plan
profit-sharing plan
Which type of plan allows an employer to give money to an employee for buying a life insurance policy and also permits the employee to select the beneficiary? - split- dollar plan - employer purchase plan
split- dollar plan
A contract owner terminates an annuity before the income payment period begins. The owner will then receive: - half of the current surrender value - the current contract surrender value - premiums paid to date - nothing
the current contract surrender value
Who is normally considered to be the owner of the 403(b) tax-sheltered annuity? - the employee - the employer
the employee
All of these are considered to be a benefit under Social Security, EXCEPT for: - survivorship - unemployment
unemployment
A(n) ________ annuity pays benefits based on the units rather than stated dollar amounts. - variable - unit
variable
All of the following statements about traditional individual retirement accounts are false EXCEPT: - 10% penalty is applied to withdrawals after age 59.5 - 10% penalty is applied to withdrawals before 59.5
10% penalty is applied to withdrawals before 59.5
What is the maximum number of employees (earning at least $5,000) that an employer can have in order to start a SIMPLE retirement plan? - 100 - 50
100
Which of the following statements about noncontributory employee group life insurance is FALSE? - A minimum number of employees is required to participate - All eligible employees must be covered - No evidence of insurability required - Must have conversion rights
A minimum number of employees is required to participate Must cover ALL eligible employees at all times.
When an individual is planning to protect his family with life insurance, one method of doing so is called needs analysis. What exactly does needs analysis involve? - Establishes the needs of the individual and his dependents - Takes into account the present value of future income earned by the breadwinner
Establishes the needs of the individual and his dependents
K is an annuitant currently receiving payments. If she were to die before receiving payments equal to the correct value, a beneficiary will continue receiving payments until an amount equal to the contract value has been paid. This is called a(n) - Installment refund annuity - Equal value annuity
Installment refund annuity
In a Key Employee life insurance policy, the third party owner can be all of the following EXCEPT: - Owner - Insured -Applicant - Payor
Insured
Variable annuities may invest premiums in each of the following EXCEPT: - Junk bonds - Insurer's corporate business account
Insurer's corporate business account
A sole proprietor may use this plan ONLY if the employees of this business are included. - SEP Plan - Keogh Pension Plan - Individual Retirement Account (IRA) SIMPLE plan
Keogh Pension Plan
T has an annuity that guarantees an income payment for the rest of his life. The contract also guarantees that if T dies before receiving payments for 20 years, the remaining payments will be paid to his son for the balance of the 20 years. What type of annuity is this?
Life annuity with period certain
Which of these is an element of a single premium annuity? - Lump sum payment - Fixed income
Lump sum payment
Which of the following is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made? - The account can be rolled into the surviving spouse's IRA - Surrender charge is applied
The account can be rolled into the surviving spouse's IRA
A qualified profit-sharing plan is designed to: - allow key employees to participate in the profits of the company - allow employees to participate in the profits of the company
allow employees to participate in the profits of the company
Group life insurance policies are generally written as: - annually renewable term - group whole life
annually renewable term
Which of these is NOT considered to be cost connected with an individual's death? - tax liability - business expenses - probate costs
business expenses
T purchased a $100,000 single premium, Straight Life annuity 5 years ago. He has received monthly payments since the inception of the annuity. If T dies, the insurance company: - does NOT have to make any further payments - MUST make full payments to the beneficiary - MUST make half payments to the beneficiary - has the option to continue making payments based on what has already been paid out
does NOT have to make any further payments
In life insurance, the needs approach is used mostly to establish: - which type of life insurance a client should apply for - how much life insurance a client should apply for
how much life insurance a client should apply for
Which statement regarding third-party ownership of a life insurance policy is true? - beneficiary is required to be irrevocable - it is used extensively in estate-planning as well as business circumstances
it is used extensively in estate-planning as well as business circumstances
A trustee- to trustee transfer of rollover funds in a qualified plan allows a participant to avoid: - mandatory income tax withholding on the transfer amount - paying transfer fees
mandatory income tax withholding on the transfer amount
Rick recently died and left behind an individual IRA account in his name. His widow was forwarded the balance of the IRA. The widow qualifies for the: - marital deduction - death benefits
marital deduction
In an individual retirement account (IRA), rollover contributions are: - subject to capital gains tax - subject to ordinary income tax - partially limited by dollar amount - not limited by dollar amount
not limited by dollar amount
