Life: Retirement and Other Insurance Concepts Flashcard

Front

What is third party ownership in life insurance?

Back

The policyowner is someone other than the insured.

Answer explanation

Third party ownership in life insurance means that the policyowner is someone other than the insured. This allows a person to purchase a policy for another individual, which is distinct from the insured holding all rights.

Front

In a life settlement, what does the buyer receive?

Back

The death benefit of the policy.

Answer explanation

In a life settlement, the buyer receives the death benefit of the policy, which is the amount paid out upon the original owner's death, rather than the premiums or cash surrender value.

Front

What is the conversion privilege in group life insurance?

Back

Allows the insured to convert group coverage to an individual policy without proof of insurability.

Answer explanation

The conversion privilege in group life insurance allows the insured to convert their group coverage to an individual policy without needing to provide proof of insurability, ensuring continued coverage.

Front

What is a characteristic of a contributory group life insurance plan?

Back

Employee pays part of the premium.

Answer explanation

In a contributory group life insurance plan, employees typically share the cost by paying part of the premium, distinguishing it from plans where the employer covers the entire premium or where employees pay the full amount.

Front

What is a qualified retirement plan?

Back

A plan that offers tax deferred growth and meets IRS and ERISA requirements.

Answer explanation

A qualified retirement plan is one that meets IRS and ERISA requirements, allowing for tax-deferred growth on contributions. This distinguishes it from non-qualified plans, which do not offer these benefits.

Front

What is a key feature of nonqualified retirement plans?

Back

They are used to defer compensation for select employees.

Answer explanation

A key feature of nonqualified retirement plans is that they are used to defer compensation for select employees, allowing employers to provide additional benefits without adhering to IRS and ERISA requirements.

Front

What is the purpose of a key person insurance policy?

Back

To protect a business from financial loss due to the death of a key employee.

Answer explanation

The purpose of a key person insurance policy is to protect a business from financial loss due to the death of a key employee, ensuring stability and continuity in operations.

Front

What is a buy-sell agreement in business insurance?

Back

An agreement to fund the purchase of a deceased owner's share.

Answer explanation

A buy-sell agreement is a legal contract that ensures the purchase of a deceased owner's share of the business, providing financial security and continuity for the remaining owners.

Front

What is the tax treatment of individual life insurance premiums?

Back

Premiums are not tax deductible.

Answer explanation

Premiums for individual life insurance are not tax deductible, meaning you cannot subtract them from your taxable income. This is important for tax planning and understanding the overall cost of insurance.

Front

What is a Modified Endowment Contract (MEC)?

Back

A life policy that fails the 7 pay test.

Answer explanation

A Modified Endowment Contract (MEC) is a life policy that fails the 7 pay test, meaning it has exceeded the maximum premium limits set by the IRS, resulting in different tax treatment for withdrawals and loans.