Taxes, Retirement, and Other Insurance Concepts
The purchase of life insurance
Creates an immediate estate
Qualified plans
have tax advantages
A MEC is an overfunded life insurance policy
= failed the 7 pay test
Once a MEC
Always a MEC
Conversion privilege
An element of some group insurance policies which allow an insured to continue coverage under an individual policy if they are leaving the employer or organization or if the group contract is terminated. individual had 31 days to convert, and doesn't need to prove insurability.
If a retirement plan is 'qualified', what does that mean?
It is approved by the IRS
Death benefit
Tax free if taken in a lump sum distribution to a named beneficiary and Principal is tax free, interest is taxable if paid in installments
Simplified Employee Pension (SEP)
Tax-deferred account to which the self-employed and employees of very small businesses can contribute.
When an employer is pays all of the premiums
The plan is referred to as a non contributory plan
Which of the following statements regarding the taxation of modified endowment contract is FALSE?
Withdrawals are not taxable
Traditional IRAs and ROTH IRAs
are for individuals with earned income
Premiums
are not tax deductible
Viatical brokers represent
the insured
Old Age, Survivors, and Disability Insurance (OASDI)
A Federal program enacted in 1935, which is designed to provide protection for eligible workers and their dependents against financial loss due to old age
403 (b)
Are for nonprofits and public-school systems
Cross Purchase Plan
Business continuation funding plan whereby each partner agrees to buy Life policies on each other, but not themselves.
In a direct transfer, how is the money transferred from one retirement plan to a traditional IRA?
From trustee to trustee
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
Cash value of a business owned life insurance policy
accumulates on a tax-deferred basis an is taxed in the same manner as an individually owned policy
Individual Retirement Account
allows individuals with earned income to make tax deductible contributions regardless of age
Buy-Sell Agreement
are used to contractually establish the intent of someone else to purchase the business upon the insured's death and sets value on a business
Contributions to a traditional IRA are with pre tax dollars (tax deductible)
contributions to a ROTH IRA are with after tax dollars (NOT tax deductible)
Policy loans
from the cash value are NOT income taxable
Rollover
is a tax free distribution of cash from one retirement plan to another. Generally within 60 days)
Key Person Insurance
protects against the loss of a key employee or key executive by making the business the beneficiary if a key person dies. The business is the owner, premium payor, and beneficiary.
viatical producers represent
providers
Insureds
referred to as viators
Transfer
refers to a tax free transfer of funds from one retirement program to a traditional IRA or a transfer of interest in a traditional IRA from one trustee directly to another
When the premiums are shared between the employer and employees
the plan is referred to as a contributory plan
All of the following are examples of a third party ownership of a life insurance policy EXCEPT
An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan
Qualified retirement plan
Approved by the IRS, which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth.
Group Insurance
is written as annually renewable term insurance
Viatical Settlement Provider
When a company purchases life insurance from a policy owner. They buy a % of the death benefit. They must pay the premium on the policy. It is usually sold to terminally ill patients (death of 24 months or less)
In a life settlement
the owner sells an existing life policy to a third party
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.
3rd party ownership
legal term used to identify an individual that is not insured under the contract, but has a legally enforceable right under it. Usually involve minors in which the parents owns the policy.
Policy loans
not income taxable. Unlike an individual taxpayer, a corporation may deduct interest on a life insurance policy up to 50,000
In group insurance,
the master contract is for the employer, and certificates of insurance are for individual insureds.
Which of the following is incorrect concerning a noncontributory group plan?
The employees receive individual policies; The employer receives a master policy, and employees receive a certificate of insurance
Self employed plans (HR-10 or Keogh Plans)
KEOGH Plans, or HR-10 Plans, allow self employed individuals to fund their retirement programs with pre-tax dollars as if under a corporate retirement or pension plan. To be eligible, the person must be self employed or a partner working part time or full time who owns at least 10 % of the business
insured status (social security)
fully insured, 40 quarters of coverage, 10 years of work- partially insured, 6 out of the last 13 quarters before becoming eligible for benefits
