INS 3303 Life Ins 2nd half Final Study Guide (INS3303)

Exam (elaborations) INS 3303 Life Ins 2nd half Final Study Guide (INS3303) Question 1 2 out of 2 points For estate tax purposes, life insurance Selected Answer: held by a revocable life insurance trust is includable in the grantor's estate  Question 2 0 out of 2 points Which of the following goals can be achieved by the use of key employee life insurance? Assure shareholders of a public corporation that the price of the stock will not plummet at the death of a president or other senior executive.  Question 3 0 out of 2 points Which of the following circumstances, if true, would make a nonqualified deferred compensation plan inadvisable? Answer s: the business is not likely to survive the death, disability or retirement of its key employees  Question 4 0 out of 2 points All of these recent changes in qualified plan pension law have made nonqualifying deferred compensation plans more attractive, except easier nondiscrimination rules place fewer restraints on employer's discretion  Question 5 2 out of 2 points Which of the following types of qualified plans provides the most advantageous treatment of life insurance? Selected Answer: defined benefit plan  Question 6 INS 3303 Life Ins 2nd half Final Study Guide 0 out of 2 points Which of the following statements regarding the tax implications of key employee life insurance is correct? Answer s: The sale of key employee insurance to the insured employee is exempt from the transfer for value rule.  Question 7 0 out of 2 points Which of the following is one of the key advantages of using life insurance in a qualified plan? the ability of an employer to provide employees with retirement benefits on more favorable terms than would be available through individually purchased products  Question 8 0 out of 2 points Once a grantor transfers assets to a revocable living trust, any income losses, deductions, or credits become taxable to the trust, even if the grantor is the trustee. Fals e  Question 9 0 out of 2 points In order for a participant to avoid current taxation of his benefits under a nonqualified deferred compensation plan, he must not be deemed to have constructive receipt of income under the plan. Constructive receipt can be avoided if certain provisions are included in the design of the plan. Which one of the three following provisions will not avoid constructive receipt? a provision that permits the employee to place his benefits beyond the reach of the employer's creditors if he suspects that the employer is in financial difficulty  Question 10 0 out of 2 points The life insurance products used to fund a qualified plan may provide employees with retirement benefits at more favorable terms than individual contracts. Answer s: True  Question 11 2 out of 2 points Premiums paid by the corporation for key employee life insurance are deductible for federal income tax purposes. Selected Answer: Fals e  Question 12 2 out of 2 points The principle advantage of pension maximization is increased planning flexibility. Selected Answer: Tru e  Question 13 2 out of 2 points Corporate owned life insurance (COLI) is an attractive means of financing an employer's obligations under a nonqualified deferred compensation plan for all but one of the following reasons. Which one is inapplicable? Selected Answer: a plan funded with life insurance is exempt from all state and federal regulatory requirements  Question 14 2 out of 2 points One of the key elements of a pension maximization plan is that the couple be sufficiently disciplined and secure financially to keep the life insurance in force. Selected Answer: Tru e  Question 15 2 out of 2 points When life insurance is provided through a qualified plan, the costs resulting from any substandard ratings are taxable income to the insured employee. Selected Answer: Fals e  Question 16 2 out of 2 points Compared to alternative plan investment, life insurance typically provides lower expenses and higher rates of return. Selected Fals Answer: e  Question 17 2 out of 2 points For income tax purposes, Selected Answer: the grantor of a revocable life insurance trust generally reports trust income, losses, deductions, and credits if he is trustee  Question 18 2 out of 2 points The disadvantages of using a revocable life insurance trust include all but which of the following? Selected Answer: insurance proceeds would be available to a testamentary trust before they would be available for a revocable trust  Question 19 2 out of 2 points The principal requirement in implementing a pension maximization strategy is compliance with ERISA. Selected Answer: Fals e  Question 20 0 out of 2 points Three of the following are advantages of fully-insured pension plans (i.e., plans holding only life insurance and annuity contracts that meet certain requirements). Which statement is not an advantage of fully insured plans? fully insured plan cash values are not subject to income tax  Question 21 2 out of 2 points Which of the following statements accurately describes one of the characteristics of a Section 162 plan? Selected Answer: at no time does the employer have any incident of ownership in the policy  Question 22 0 out of 2 points All of the following statements about the income taxation of an insured death benefit received by a plan participant's beneficiary are accurate except: the entire death benefit received by a plan participant's beneficiary is recovered tax free  Question 23 2 out of 2 points Which of the following accurately describes one of the disadvantages of a Section 162 plan? Selected Answer: the employer has no control over either the employee or the policy through the plan  Question 24 2 out of 2 points Which of the following is one of the advantages of a pension maximization strategy? Selected Answer: the life insurance policy provides more planning flexibility as compared with a joint and survivor payout  Question 25 2 out of 2 points Ordinarily, the cost of life insurance purchased at retirement in an amount sufficient for a pension maximization plan will be greater than the differential between the single and joint life annuity payouts. Selected Answer: Tru e  Question 26 2 out of 2 points The advantages of using a revocable life insurance trust include all but which of the following? Selected Answer: it is less costly and simpler than selecting a settlement option  Question 27 2 out of 2 points The term "pension maximizing'' refers to Selected Answer: a strategy for providing a more attractive overall benefit package for married couples by insuring the participant's life outside the plan  Question 28 2 out of 2 points Mr. Jones' pension pays $3,000 a month under the single life annuity option or $2,550 a month under the joint and 50% survivor annuity option. Mr. and Mrs. Jones elect the joint and 50% survivor annuity. What is the effective "cost'' of the 50% survivor annuity? Selected Answer: $450 per month  Question 29 2 out of 2 points A Section 162 plan can be terminated by the employer at any time for any reason. Selected Answer: Tru e  Question 30 2 out of 2 points Premiums on life insurance in a qualified plan are deductible by the employer as part of its annual contribution for covered employees. Selected Answer: Tru e  Question 31 2 out of 2 points Which of the following is true regarding variations on the "classic'' split dollar plan? Selected Answer: Under the Reverse Split Dollar Plan the employee's share of the premium is the amount of the cash value increase in the year with the employer paying the balance.  Question 32 2 out of 2 points Under the insurance feature of the joint & survivor annuity, the pensioner generally has no rights to: Answer s: accelerate benefit payments if a need occurs choose an alternative or substitute beneficiary wait to select the type of benefit to be paid all of the above  Question 33 2 out of 2 points The rule against perpetuities is a state law restriction designed to limit the period during which a trust can withhold property or its income from outright ownership. Selected Answer: Tru e  Question 34 2 out of 2 points Which of the following features is a characteristic of key employee life insurance? Selected Answer: The corporation pays the premiums on the policy.  Question 35 0 out of 2 points The sale of a key employee policy to the employee following his retirement or termination will trigger the transfer for value rule. Answer s: True Fals e  Question 36 0 out of 2 points The employer is taxed on the value of the economic benefit received from the employees participation in the split-dollar arrangement. Fals e  Question 37 2 out of 2 points In order to take