LIFE INSURANCE ADVANCED CONCEPTS Flashcards
ACCELERATED BENEFITS PROVISION
ENTITLES A QUALIFIED INSURED TO RECEIVE A PRE-DEATH BENEFIT DEEMED NONTAXABLE
BUY-SELL AGREEMENTS
ARRANGEMENTS THAT REQUIRE THE SALE AND PURCHASE OF SECURITIES OWNED BY ONE INDIVIDUAL TO ANOTHER FOLLOWING A SPECIFIED TRIGGERING EVENT, SUCH AS THE DEATH OF A BUSINESS OWNER
CHRONICALLY ILL
A PERSON IS CHRONICALLY ILL IF WITHIN THE PAST 12 MONTHS, A HEALTH CARE PRACTITIONER HAS CERTIFIED THAT THE INDIVIDUAL HAS BEEN UNABLE TO PERFORM, WITHOUT SUBSTANTIAL ASSISTANCE, AT LEAST TWO ACTIVITIES OF DAILY LIVING (EATING, BATHING, DRESSING, TRANSFERRING, TOILETING, AND CONTINENCE) FOR AT LEAST 90 DAYS. A PERSON IS ALSO CHRONICALLY ILL IF SUBSTANTIAL SUPERVISIONIS REQUIRED TO PROTECT THAT PERSON FROM THREATS TO HEALTH AND SAFETY DUE TO COGNITIVE DISIBILITY (SUCH AS ADVANCED STAGES OF ALZHEIMERS DISEASE OR SENMILE DEMENTIA)
CONSTRUCTIVE RECEIPT
AN INCOME TAX CONCEPT THAT ESTABLISHES WHEN INCOME IS INCLUDIBLE BY A TAXPAYER AND THEREFORE SUBJECT TO INCOME TAX. INCOME IS CONSTRUCTIVELY RECEIVED IN THE TAXABLE YEAR DURING WHICH IT IS CREDITED TO THE EMPLOYEES ACCOUNT, SET APART FOR HIM, OR OTHERWISE MADE AVAILABLE SO THAT HE MAY DRAW UPON IT AT ANY TIME OR SO THAT HE COULD HAVE DRAWN UPON IT DURING THE TAXABLE YEAR IF NOTICE OF INTENTION TO WITHDRAW HAD BEEN GIVEN
CROSS-PURCHASE BUY-SELL AGREEMENT
AN ARRANGEMENT BETWEEN INDIVIDUALS WHO AGREE TO PURCHASE THE BUSINESS INTEREST OF A DECEASED OWNER
DEFERRED COMPENSATION ARRANGEMENTS
AN ARRANGEMENT TO PAY AN EXECUTIVE COMPENSATION IN A FUTURE YEAR
ECONOMIC BENEFIT DOCTRINE
AN EMPLOYEE WILL BE TAXED ON FUNDS OR PROPERTY SET ASIDE FOR THE EMPLOYEE IF THE FUNDS OR PROPERTY ARE UNRESTRICTED AND NONFORFEITABLE EVEN IF THE EMPLOYEE WAS NOT GIVEN A CHOICE TO RECEIVE THE INCOME CURRENTLY
ENTITY PURCHASE (REDEMPTION) AGREEMENT
TYPE OF BUY-SELL AGREEMENT THAT OBLIGATES THE BUSINESS ENTITY TO PURCHASE AN OWNERS INTEREST IN THE ENTITY UPON THAT OWNERS DEATH
KEY PERSON INSURANCE
A LIFE OR DISABILITY INSURANCE POLICY ON A KEY PERSON WHOSE DEATH OR DISABILITY WOULD CAUSE A SUBSTANTIAL HARDSHIP TO THE BUSINESS. THE BUSINESS IS THE OWNER, PAYER, AND BENEFICIARY OF THE DEATH BENEFIT (OR DISABILITY INCOME BENEFIT), SO THAT THE BUSINESS IS PROTECTED AGAINST THE UNEXPECTED LOSS OF THE EMPLOYEE DUE TO DEATH OR DISABILITY
LIFE SETTLEMENT
A POLICY OWNER SELLS A LIFE INSURANCE POLICY TO A THIRD PARTY FOR MORE THAN THE CASH SURRENDER VALUE, BUT LESS THAN THE DEATH BENEFIT VALUE. IN MOST CASES, THE INSURED IS NEITHER TERMINALLY NOR CHRONICALLY ILL (IN WHICH CASE ACCELERATED BENEFITS OR A SALE TO A QUALIFIED VIATICAL SETTLEMENT PROVIDER WOULD BE MORE ADVANTAGEOUS). THE OWNER SIMPLY DOES NOT WANT THE POLICY ANY LONGER AND DETERMINES THAT HE OR SHE MAY BE ABLE TO SELL IT FOR A LARGER AMOUNT THAN COULD BE OBTAINED THROUGH SURRENDERING THE POLICY
RABBI TRUST
A REVOCABLE OR IRREVOCABLE TRUST THAT IS DESIGNED TO HOLD FUNDS AND ASSETS FOR THE PURPOSE OF PAYING BENEFITS UNDER A NONQUALIFIED DEFERRED COMPENSATION ARRANGEMENT. THE ASSETS IN THE RABBI TRUST ARE FOR THE SOLE PURPOSE OF PROVIDING BENEFITS TO THE EMPLOYESS AND MAY NOT BE ACCESSED BY THE EMPLOYER, BUT THEY MAY BE SEIZED AND USED FOR THE PURPOSE OF PAYING GENERAL CREDITORS IN THE EVENT OF A LIQUIDATION OF THE COMPANY. ASSETS WITHIN A RABBI TRUST ARE NOT CURRENTLY TAXABLE TO THE EMPLOYEE
SALARY REDUCTION PLANS
A NONQUALIFIED PLAN DESIGNED TO RECEIVE DEFERRAL CONTRIBUTIONS FROM EXECUTIVES TO REDUCE THEIR CURRENT TAXABLE INCOME
SEC. 162 BONUS PLAN (GROUP CARVE OUT)
A FRINGE BENEFIT OFFERED TO A SELECT GROUP OF EXECUTIVES WHERE THE EMPLOYER PAYS A SALARY BONUS TO THE EXECUTIVE FOR THE PURPOSE OF PAYING PREMIUMS ON A PERMANENT LIFE INSURANCE POLICY OWNED BY THE EXECUTIVE. A DOUBLE BONUS MAY BE PAID SO THAT IT COVERS THE TAXES DUE ON PREMIUM BONUS, RESULTING IN A NET COST OF $0 TO THE EMPLOYEE
SECULAR TRUSTS
IRREVOCABLE TRUSTS DESIGNED TO HOLD FUNDS AND ASSETS FOR THE PURPOSE OF PAYING BENEFITS UNDER A NONQUALIFIED DEFERRED COMPENSATION ARRANGEMENT. A SECULAR TRUST DOES NOT CREATE A SUBSTANTIAL FIST OF FORFEITURE TO THE EMPLOYEE. ASSETS SET ASIDE IN A SECULAR TRUST RESULTS IN IMMEDIATE INCLUSION OF INCOME TO THE EMPLOYEE
SINKING FUND
A SINKING FUND IS A FUND ESTABLISHED BY A COMPANY TO PAY FOR FUTURE EXPENSES OR TO RETIRE DEBT OR FULFILL ANOTHER OBLIGATION SUCH AS THE OBLIGATION TO REPURCHASE STOCK FROM A RETIRING OWNER/ EMPLOYEE. IT IS CREATED BY SETTING ASIDE INCOME OVER A PERIOD OF TIME (GENERALLY YEARS)
