Chapter 9

Question 1

Personally Owned Disability Income Policies

Answer 1

Premium payments are nondeductible by the individual

Question 2

Disability Income Benefits

Answer 2

Received income tax free by individual

Question 3

Taxation of LTC Insurance

Answer 3

Premiums may be deductible; benefits are received income tax free if they don’t exceed the cost of LTC; benefits paid in excess of the cost of care received are taxed as ordinary income

Question 4

Disability Income Premiums

Answer 4

When paid by employer, deductible as a business expense and are not taxable income to employee

Question 5

Disability Income Benefits

Answer 5

Received by an employee and is attributable to employer contributions are fully taxable to the employee as income

Question 6

Noncontributory

Answer 6

Employer pays the entire cost, so benefits are taxed as ordinary income

Question 7

Fully contributory

Answer 7

Employee pays the entire cost so benefits are received income tax free

Question 8

Partially contributory

Answer 8

Paid partially by employer and partially by employee, the portion paid by employee is received income tax free and the portion paid by the employer is taxed as ordinary income

Question 9

Short-Term Disability

Answer 9

Have a benefit period of less than 2 years, maximum dollar amount on benefits

Question 10

Long-Term Disability

Answer 10

Pay benefits for 2 years or longer

Question 11

Key Person Disability Income

Answer 11

Premiums are not deductible to the business but benefits are received income tax free by business

Question 12

Disability Buy-Sell

Answer 12

Premiums are not deductible to the business, but benefits are received income tax free by business

Question 13

Health Savings Account (HSA)

Answer 13

Help individuals save for qualified health expenses; excess funds can carry over to next year; contributions by employer are not included in taxable income; premiums not deductible, benefits not taxable when used for medical expenses

Question 14

Health Reimbursement Account (HRA)

Answer 14

Funds set aside by employers to reimburse employees for qualified medical expenses such as deductibles or copays; deductible as business expense; employer contributions are tax deductible; premiums deductible, benefits not taxable

Question 15

Flexible Spending Account (FSA)

Answer 15

A form of cafeteria plan benefit funded by salary reduction and employee contributions; 2 types of FSAs - Health care account for out of pocket care expenses and Dependent care account for dependent care expenses; exempt from federal/state income taxes and SS/FICA taxes; premiums not deductible, benefits not taxable

Question 16

Group Disability Income

Answer 16

Deductible premium for employer, taxable benefit

Question 17

Individual Medical

Answer 17

Premiums not deductible, benefits not taxable

Question 18

Group Medical

Answer 18

Premiums deductible for employer, benefits not taxable

Question 19

Individual LTC

Answer 19

Premiums not deductible, benefits not taxable

Question 20

Group LTC

Answer 20

Premiums deductible for employer, benefits not taxable

Question 21

Individual Medicare Supplement

Answer 21

Premiums not deductible, benefits not taxable

Question 22

Group Medicare Supplement

Answer 22

premiums deductible for employer, benefits not taxable

Question 23

Business Overhead Expense (BOE)

Answer 23

Premiums deductible for employer, benefits taxable