Taxes, Retirement, and Other Insurance Concepts Flashcards
WHO OWNS A GROUP LIFE CONTRACT? WHAT DOES THE INSURED RECEIVE?
The actual policy (master policy/contract) is issued to the sponsor of the group, which is often an employer. The employees are the insured who are issued certificates of insurance.
WHAT ARE SOME OF THE GROUP CHARACTERISTICS IMPORTANT FOR UNDERWRITING?
Purpose, size turnover and financial strength of the group
WHAT ARE THE GENERAL REQUIREMENTS FOR QUALIFIED PLANS?
The plan must be for the exclusive benefit of the employees and their beneficiaries, must be formally written and communicated to the employees, and cannot discriminate in favor of the prohibited group. The plan must be permanent, approved by the IRS, and have a vesting requirement.
WHO CAN CONTRIBUTE TO A TRADITIONAL IRA?
Individuals or married couples with earned income, up to the age of 70 1/2
WHAT ARE THE MAIN DIFFERENCES BETWEEN A TRADITIONAL IRA AND A ROTH IRA?
Contributions are after tax and can continue beyond age 70 1/2. Distributions do not have to begin at age 70 1/2
WHAT ARE THE CONSEQUENCES OF WITHDRAWING MONEY FROM A TRADITIONAL IRA PRIOR TO AGE 59%?
10% penalty on distribution unless it qualifies for an exemption
WHO IS ELIGIBLE FOR A KEOGH(HR-10) plan?
A self employed individual or a partner working part or full time who owns at least 10% of the business
WHAT IS THE MAXIMUM NUMBER OF PARTICIPANTS IN A SIMPLE PLAN?
100 employees
HOW ARE INCOME PAYMENTS FROM A 403(b) PLAN TAXED?
Funds contributed are excluded from the employee’s current taxable income, but are taxable upon withdrawal
WHAT ARE SOME COMMON PERSONAL USES OF LIFE INSURANCE?
Survivor protection, estate creation and conservation, cash accumulation and liquidity
WHAT IS THE PURPOSE OF KEY PERSON INSURANCE?
To minimize the risk of a financial loss because of the premature death of a key employee that has specialized knowledge, skills or business contacts.
HOW ARE LIFE INSURANCE DEATH PROCEEDS TAXED?
If taken as a lump sum, proceeds are tax free. If other than lump sum, principal is tax free and interest is taxable.
HOW ARE DIVIDENDS TAXED IN PARTICIPATING POLICIES?
Dividends are the return of unused premiums, so they are not considered income for tax purposes. However, if dividends are left with the insurer to accumulate interest, the interest earned on the dividend account is subject to taxation as ordinary income each year interest is earned.
WHEN DOES A LIFE INSURANCE POLICY BECOME A MODIFIED ENDOWMENT CONTRACT?
Any life insurance policy that fails a 7-pay test is classified as a Modified Endowment Contract (MEC), and loses the standard tax benefits of a life insurance contract.
IN REGARDS TO SOCIAL SECURITY, WHAT DOES THE TERM FULLY INSURED MEAN?
it refers to someone who has earned 40 quarters of coverage, and is therefore entitled to receive Social Security retirement, Medicare, and survivor benefits
