Chapter 4 - Group Policies

Question 1

Life Settlement

Answer 1

when an owner of a policy sells to a third party.

Question 2

How is group insurance written?

Answer 2

As annually renewable term insurance.

Question 3

Conversion Privilege

Answer 3

If an employee terminates membership in a the insured group and has been on plan for 5 years, the employee has the right to covert to an individual policy without proving insurability, at a standard rate for the employee’s age.

Question 4

How long is the conversion option window?

Answer 4

31 days from terminating from the group.

Question 5

What is non contributory plan?

Answer 5

When the employer pays all of the premiums.

Question 6

What is contributory plan?

Answer 6

When premiums are shared between employer and employees. 75% of employees must be on the plan.

Question 7

What are two individual qualified plans?

Answer 7

Traditional IRA and Roth IRA

Question 8

Difference between ira and roth?

Answer 8

ira is funded with pre tax dollars, roth ira are with after tax dollars.

Question 9

What is 403(b) plan?

Answer 9

A tax sheltered annuity plan available to non profits and public school employees.

Question 10

Survivor Protection

Answer 10

Provide necessary funds for survivors of insured to maintain their lifestyle.

Question 11

Buy sell arrangments

Answer 11

Used to contractually establish the intent of someone to buy the business in the event of a death.

Question 12

Executive bonus:

Answer 12

Employer agrees to pay for premium of a policy of an employee.

Question 13

How are lump sum death benefits taxed?

Answer 13

Tax free, if in installments the principal is tax free but the interest is paid on the returns.

Question 14

Is interest charged on policy loans?

Answer 14

Yes, the insurer will charge interest on outstanding policy loans.

Question 15

Are group life employer paid premiums tax deductible if employer is not beneficiary?

Answer 15

Yes

Question 16

If the business is the beneficiary of a group life policy, are the premium payments tax deductable?

Answer 16

No

Question 17

MEC

Answer 17

Modified endowment contract. When a policy fails a 7-pay test, it looses the standard tax benefit of a life insurance contract.

Question 18

FIFO and LIFO

Answer 18

Insurance follows FIFO. Annuities follow LIFO.

Question 19

What are Keogh plans?

Answer 19

They are retirement plans for self employed. Must work more than 1000 hours per year to be eligible.

Question 20

Common types of business life insurance:

Answer 20

• Key person
• Buy-sell agreements
• Executive bonus arrangments

Question 21

3 types of social security benefits:

Answer 21

• Retirement
• Disability
• Survivors

Question 22

Details of SIMPLE plan?

Answer 22

Retirement plan available to companies who employ no more than 100 employees and employees must receive at least $5,000 a year.

Question 23

What percentage of employees must be in employer contributory and noncontributory plans?

Answer 23

75% and 100%

Question 24

What is a stoli policy?

Answer 24

A stranger originated policy that acts as an investment.

Question 25

List characteristics of key person insurance:

Answer 25

• Can be any type of insurance.
• The employer is the owner, payor and beneficiary.
• No limitation on the number of key person insurance.
• Employer receives benefits tax free.

Question 26

What is the name of the policy issued to the an employer in a single employer group plan?

Answer 26

Master contract.

Question 27

How is cost of coverage in group life determined?

Answer 27

Based on the ratio of men and women in the group.