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CFP512: RISK MANAGEMENT, INSURANCE,
AND EMPLOYEE BENEFITS PLANNING
QUESTIONS WITH DETAILED VERIFIED
ANSWERS
Taxation on life insurance transfer due to divorce Ans: 2018 & Before:
premiums deductible to payor, taxable to payee
2019+: premiums NOT deductible to payor or taxable to payee
Investment in life insurance contract = Ans: premiums - dividends -
loans/withdrawals
Guaranteed lifetime withdrawal benefit (GLWB) Ans: can withdraw
certain % of contract each year for life regardless of subaccount
performance
Guaranteed minimum withdrawal benefit (GMWB) Ans: can withdraw
certain amount of contract (typically return of premium) during specific
period regardless of subaccount performance
Guaranteed minimum income benefit (GMIB) Ans: can annuitize to a
certain minimum guaranteed income regardless of subaccount
performance
Guaranteed minimum accumulation benefit (GMAB) Ans: guarantees at
least return of principal after specific waiting period
Fixed annuity exclusion ratio = Ans: investment in contract / expected
return
Variable annuity exclusion ratio = Ans: investment in contract / #
expected annual payments
Taxable annuity payments Ans: amount in excess of excluded amount
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payments beyond projected life expectancy
Non-natural person as annuity holder Ans: income on contract treated
as ordinary income in that year
loss on contract treated as ordinary loss without limit
Modified own occupation Ans: Unable to work in occupation reasonably
fitted by education, training, experience, and prior economic status
Presumptive disability conditions Ans: blindness
deafness
loss of speech
loss of two or more limbs
Social Security disability definition Ans: inability to engage in any
substantial gainful activity longer than 12 months
Social Security disability elimination period Ans: 5 months
Residual disability rider Ans: policy will pay difference in income prior to
disability after returning to work and earning lower income
Conditionally renewable DI Ans: continuous-term policy that insurance
company can cancel if conditions are met
Disability buyout premiums Ans: not tax deductible by employer
Taxability of S-Corp/partnership disability policies Ans: employer can
only deduct premiums for partners/>2% shareholders
premiums included in partners/>2% shareholders' income
benefits are tax-free
COBRA employee minimum Ans: 20
CFP512: RISK MANAGEMENT, INSURANCE,
AND EMPLOYEE BENEFITS PLANNING
QUESTIONS WITH DETAILED VERIFIED
ANSWERS
Taxation on life insurance transfer due to divorce Ans: 2018 & Before:
premiums deductible to payor, taxable to payee
2019+: premiums NOT deductible to payor or taxable to payee
Investment in life insurance contract = Ans: premiums - dividends -
loans/withdrawals
Guaranteed lifetime withdrawal benefit (GLWB) Ans: can withdraw
certain % of contract each year for life regardless of subaccount
performance
Guaranteed minimum withdrawal benefit (GMWB) Ans: can withdraw
certain amount of contract (typically return of premium) during specific
period regardless of subaccount performance
Guaranteed minimum income benefit (GMIB) Ans: can annuitize to a
certain minimum guaranteed income regardless of subaccount
performance
Guaranteed minimum accumulation benefit (GMAB) Ans: guarantees at
least return of principal after specific waiting period
Fixed annuity exclusion ratio = Ans: investment in contract / expected
return
Variable annuity exclusion ratio = Ans: investment in contract / #
expected annual payments
Taxable annuity payments Ans: amount in excess of excluded amount
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payments beyond projected life expectancy
Non-natural person as annuity holder Ans: income on contract treated
as ordinary income in that year
loss on contract treated as ordinary loss without limit
Modified own occupation Ans: Unable to work in occupation reasonably
fitted by education, training, experience, and prior economic status
Presumptive disability conditions Ans: blindness
deafness
loss of speech
loss of two or more limbs
Social Security disability definition Ans: inability to engage in any
substantial gainful activity longer than 12 months
Social Security disability elimination period Ans: 5 months
Residual disability rider Ans: policy will pay difference in income prior to
disability after returning to work and earning lower income
Conditionally renewable DI Ans: continuous-term policy that insurance
company can cancel if conditions are met
Disability buyout premiums Ans: not tax deductible by employer
Taxability of S-Corp/partnership disability policies Ans: employer can
only deduct premiums for partners/>2% shareholders
premiums included in partners/>2% shareholders' income
benefits are tax-free
COBRA employee minimum Ans: 20
