Chapter 4 Flashcards
(36 cards)
Upon surrender of a life insurance policy, what portion of the cash value will be taxed?
Only the portion in excess of the premium paid
In qualified plans, are employer contributions taxed as income to the employees
No, employer contributions are not taxed as income to the employees
What does liquidity mean in a life insurance policy?
Availability of cash value
Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. What is this called?
Estate conservation
What type of policy issues certificates of insurance to the insured?
Group policy
What type of policy is typically issued without proof of insurability from the insured?
Group policy
If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion, if any will be taxed?
Interest only
What is the primary purpose of a 401(k) plan?
Provide retirement income
In what form of payment must the contributions to a traditional IRA be made?
In cash (or cash equivalents)
What are the most common types of business life insurance?
Key person insurance, buy-sell agreements, and executive bonuses
What are the consequences of withdrawing funds from a traditional IRA prior to the age of 59.5?
10% penalty
What are the three types of Social Security benefits?
Retirement, disability and survivors
What are the characteristics of the group that underwriters will consider before issuing a group life policy
Group’s purpose, size, financial strength, and turnover
When planning for survivor protection in life insurance, what needs to be considered?
The insured’s current assets, liabilities and survivor’s needs
What are the personal uses of life insurance?
Cash accumulation, liquidity, estate creation and conservation, and survivor protection
What is the main purpose of the 7 pay test?
To determine if a life insurance policy is a Modified Endowment Contract
If a retirement plan is qualified, what does that mean?
The plan has favorable tax treatment
According to the taxation rules of life insurance policies, how are cash value increases taxed?
Cash value growth is tax deferred.
What is the penalty for excessive contributions to a traditional IRA?
6%
For a retirement plan to be qualified, it must be designed for whose benefit?
Employees
Who owns a group life insurance contract?
The employer (also known as the sponsor of the group)
SIMPLE plans are available to groups of how many employees?
No more than 100
Is the death benefit of a life insurance policy taxed to the beneficiary if it’s received as a lump sum?
No, lump sum benefits are received tax free
Who qualifies for tax-sheltered annuities, or 403(b) plans?
Employees of nonprofit organizations under Section 501(c)(3) and employees of public school systems
