Group Life Insurance Flashcards
Which of these statements regarding key employee life insurance is NOT correct?
A. Policy premiums are tax-deductible.
B. Policy death benefits received by the company are generally tax-free.
C. The policy is owned by the company.
D. The policy is applied for by the company.
A.
Policy premiums are not tax-deductible. The other statements are correct.
ABC company provides its employees with GTLI equal to two times an employee’s salary. Taylor’s salary is $75,000 per year. The cost for $1,000 of life insurance is $0.63 per month, per Table 1, for an individual of Taylor’s age. What is the monthly amount included in Taylor’s compensation?
A. $15.75
B. $63.00
C. $94.50
D. $756.00
B
Key word - 2 times an employees salary = 75,000x2
$150,000 - $50,000 = $100,000 excess amount
$100,000 ÷ 1,000 = 100 excess coverage (in thousands)
100 × $0.63 = $63.00 per month
Which group of employees are typically carved out of group term life insurance plans?
A. Older, higher-paid employees
B. Younger, lower-paid employees
C. Employees with less than three years of service
D. Employees with more than three years of service
A
Older, higher-paid employees are carved out of group term life insurance plans to keep costs down.
Generally, which of the following is true for the premiums on group term life insurance paid by an employer?
A. Premiums are tax deductible by the employer and the employee.
B. Premiums are tax deductible by the employer and represent a tax liability to the employee.
C. Premiums may be tax deductible by the employer and not taxable to the employee.
D. Premiums are not tax deductible by either the employee or the employer.
C
The payments are deductible by the employer if the plan is nondiscriminatory (does not discriminate in favor of key employees).
In addition, the employee can exclude the cost of up to $50,000 of coverage from compensation (W-2) income
John is a key employee. He receives group term life insurance for four times his base salary of $225,000 from the company, while rank-and-file employees receive only the amount of their base salary. What portion of the premiums on his group term life coverage must he include in his taxable compensation income for the year?
A. The premiums on $50,000
B. The premiums on $225,000
C. The premiums on $450,000
D. The premiums on $900,000
D
$225,000 x 4 = $900,000
John is a key employee, and the group term life insurance plan discriminates on his behalf. Therefore, he must include the entire amount of the group term life insurance premium paid by the company as taxable compensation
David is covered by a $210,000 group term life insurance policy. His employer pays the entire cost of the policy. The cost of $1,000 of protection per month from Table I for David’s age is $0.06. What amount of the annual premium is taxable to David as compensation (W-2) income?
A. $0
B. $48
C. $115.20
D. $151.20
C
$210,000-$50,000/1000 = 160
160 x .06 = 9.6
9.6 x 12 = $115.20
Which of the following types of group life insurance offers tax advantages to both the employer and employee?
A. Group universal life insurance
B. Group ordinary life insurance
C. Group term life insurance
D. Group paid-up life insurance
C
Group term life insurance premiums are deductible by the employer and
excludable from income by the employee if the face value does not exceed $50,000.
All of the following statements regarding converting a group term life insurance (GTLI) policy to an individual permanent policy upon an employee’s separation from service are correct except
A. converting the GTLI to a permanent life insurance policy may be more expensive than applying for a new policy.
B. an employee who is insurable may find it advantageous to apply for a fully underwritten policy instead of converting the GTLI policy.
C. there are never any disadvantages to converting the GTLI policy to an individual permanent life insurance policy.
D. conversion is generally a guaranteed benefit.
C
Conversion is generally a guaranteed benefit upon separation from service but may not always be advantageous for former employees who are still insurable.
The premiums for a converted policy may be higher than the premiums for a new policy because the class of employees who seek conversion may be those with a higher risk of claims, resulting in adverse selection.
Which of the following statements regarding group carve-out plans are CORRECT?
I. A group carve-out plan is subject to nondiscrimination requirements.
II. Split-dollar life insurance is one method of implementing the individual coverage in a group carve-out plan.
A. Neither I nor II
B. II only
C. I only
D. Both I and II
B.
A group carve-out plan is not subject to any nondiscrimination requirements.
Demitri’s employer provides group life insurance equal to three times his salary of $30,000. The policy is a group term plan, and the employer pays 100% of the premium. Which of the following statements best describes the tax implications of Demitri’s coverage?
A. Demetri will have additional taxable income of $40,000.
B. Since it is group term, Demitri is not subject to any federal income tax on this benefit.
C. The cost of employer-provided coverage in excess of the $50,000 face amount is taxable to the employee.
D. Demitri’s employer would not be able to deduct the cost of coverage in excess of the $50,000 face amount.
C
The cost of employer-provided coverage in excess of the $50,000 face amount is taxable to the employee, based upon what is referred to as “Table I” cost per $1,000 of coverage each month.
Which of the following statements regarding group permanent life insurance is CORRECT?
I. Group permanent life insurance carries a higher chance of adverse selection than individual permanent life insurance.
II. Most group permanent policies have simplified underwriting requirements.
A. II only
B. Neither I nor II
C. I only
D. Both I and II
D
Group permanent life insurance often has simplified underwriting requirements, which increases the chances of adverse selection over individual permanent life insurance, which requires more stringent underwriting.
Which of the following statement(s) regarding group life insurance is CORRECT?
I. Employers may provide up to $50,000 of group whole life insurance on an income tax free basis to employees.
II. Group term life insurance typically includes a provision for conversion to individual permanent life insurance upon the employee’s separation from service.
A. Neither I nor II
B. I only
C. Both I and II
D. II only
D
Group term life insurance—not group whole life insurance—up to $50,000 is income tax free to employees.
Generally, employer-paid premiums for a $50,000 group term life policy
A. are tax deductible by the employee and the employer.
B. are considered a part of compensation to the employee and included as gross income on his W-2.
C. may be tax deductible by the employer and are not taxable to the employee.
D. are tax deductible by the employer and represent a tax liability for the employee.
C
The payments are deductible to the employer if the plan meets certain nondiscrimination requirements. The employee can exclude the cost of up to $50,000 of coverage from gross income.
Your client is concerned about the tax implications of his limited personal use of a company-provided car. Which of the following statements would CORRECTLY advise him about such use?
A. His personal use of the company car is taxable at an annually specified amount per mile.
B. He will have to include in income the value of his personal use based on an Internal Revenue Service formula.
C. Such use is considered de minimis by the Internal Revenue Service, so its value is excludible from his income.
D. Such personal use is not taxable since it is exempted under Code Section 401.
B
Personal use of a company-provided car is taxable but not on a per-mile basis. Instead, the IRS formula is used.
Which of the following is a characteristic of the regular personal use of an employer-provided automobile?
A. It is considered a working condition fringe benefit.
B. The value is tax exempt unless the employee is an owner or key employee.
C. The fair market value is taxable to the employee based on the cost of leasing the same or a comparable vehicle from an unrelated third party under the same or comparable lease terms
D. It is considered a working condition fringe benefit only if the employee does not allow other family members to drive the vehicle.
C
