Retirement and Other Insurance Concepts Flashcards
When planning for survivor in life insurance, what needs to be considered?
The insured’s current assets, liabilities and survivor’s needs
In qualified plans, are employer contributions taxed as income to the employees?
No, employer contributions are not taxed as income to the employees
What are the personal uses of life insurance?
Survivor protection, estate creation and conservation, cash accumulation and liquidity
What does liquidity mean in a life insurance policy?
Availability of cash value
What are the three types of Social Security benefits?
Retirement, disability, and survivors
What is the penalty for excessive contributions to a traditional IRA?
6%
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
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 insureds?
Group policy
What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?
Death benefits are generally not subject to income taxes
What is the main purpose of the 7-pay Test?
To determine if a life insurance policy is a Modified Endowment Contract
What is the primary purpose of a 401(k) plan?
Provide retirement income
When would life insurance policy proceeds be included in the insured’s taxable estate?
When there is an incident of ownership at the time of death
What type of policy is typically issued without proof of insurability from the insured?
Group Policy
If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?
Whole life
Group life insurance policies are written as what type of insurance?
Annually renewable term
What is the main advantage of converting from group life insurance to individual coverage?
Evidence of insurability is not required
What is required to qualify an individual to contribute to a traditional IRA?
Earned income
What are some examples of qualified plans?
Ira, 401(k), HR10 (Keogh), SEP, SIMPLE
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
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 are the consequences of withdrawing funds from a traditional IRA prior to the age 59 1/2?
10% penalty
Who owns a group life insurance contract?
The employer (also known as the sponsor of the group)
Why are dividends in life insurance policies not taxable?
Dividends are not considered income for tax purposes; they are a return of unused premium
Who would be considered a third-party owner?
An individual or an entity who is not the insured
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
What qualified plan is suitable for the self-employed?
HR-10 or Keogh
SIMPLE plans are available to groups of how many employees?
No more than 100
According to the taxation of life insurance policies, how are cash value increases taxed?
Cash value growth is tax deferred
For a retirement plan to be qualified, it must be designed for whose benefit?
Employees
In what for of payment must the contributions to a traditional IRA be made?
In cash (or cash equivalents)
What is the name for an overfunded life insurance policy?
A Modified Endowment Contract (MEC)
If a retire plan is qualified, what does that mean?
The plan has favorable tax treatment
Who may contribute to an HR-10 plan?
A self-employed individual
Upon surrender of a life insurance policy, what portion of the cash value will be taxed?
Only the portion in excess of premium period
