TOOLS & TECHNIQUES OF LIFE INSURANCE PLANNING



TOOLS & TECHNIQUES OF EMPLOYEE BENEFIT AND RETIREMENT PLANNING

11th Edition

College Course Materials

Deanna L. Sharpe, Ph.D., CFP®, CRPC®, CRPS®

Associate Professor

CFP® Program Director

Personal Financial Planning Department

University of Missouri-Columbia

Please Note: Correct answers for each question are indicated in bold type. After each question, the number of the page containing information relevant to answering the question is given. When a calculation is necessary or the reasoning behind a given answer may be unclear, a brief rationale for the correct answer is also given.

Part B: Employee Benefit Planning

Disability

Chapter 51: Long-Term Disability Insurance

True/False

51.1 Employer-provided long-term disability plans are subject to nondiscrimination rules.

51.2 Long-term disability payments generally replace close to 100% of salary for a limited time (e.g. 6 months), and then drop down to around 60% of former income

51.3 Employer payment of premium for long-term disability insurance on an employee is taxable to that employee in the year the payment is made.

Answers:

51.1 False [p. 383]

51.2 False [p. 384]

51.3 False [p. 385]

Multiple Choice

51.4 Common exclusions in a long-term disability policy include which of the following:

a. disability during a time the employee is not under a physician’s care

b. disability caused by a self-inflicted injury

c. disability beginning before the employee is eligible for plan coverage

d. all of the above

e. only a and b

Answer: D [p. 383]

51.5 ERISA requirements of long-term disability plans include which of the following:

a. plan provisions written and communicated to employees in a summary plan document (SPD)

b. meeting eligibility and vesting rules

c. meeting funding requirements

d. a and c

e. b and c

Answer: A [p. 386]

51.6 Common features of long-term disability policies include:

a. waiting period of 3 to 12 months before eligible for benefits

b. cover full-ime employees only

c. a broad definition of disability

d. a and b

e. a and c

Answer: D [p. 383]

Application

51.7 Baldwin Tire Company wants to provide executives with long-term disability coverage that has different amounts of coverage and terms and conditions than what’s provided for rank and file employees. If Baldwin takes this action, their long-term disability coverage plan will be deemed discriminatory and disallowed.

a. true

b. false

Answer: B [p. 383]

51.8 Homer Tanner, a foreman at Wellville Steel, pays the premium for a long-term disability policy that has a three-month waiting period and replaces 70% of pay. Homer suffered brain damage in an auto accident. Full recovery took nine months. Six months after the accident, Homer was able to return to work on a part-time basis. Still very unsteady on his feet, Homer oversaw just one section of the production line while in a wheelchair. Homer’s long-term disability payments ceased when he went back to work. Which of the following is true?

I. Homer’s long-term disability payments were taxed as ordinary income

II. Homer’s long-term disability payments were tax-free

III. the definition of disability in his long-term disability policy was “own occupation”

IV. the definition of disability in his long-term disability policy was “qualified for”

V. the definition of disability in his long-term disability policy was “total and permanent”

a. I and III

b. II and III

c. I and IV

d. II and IV

e. I and V

Answer: D [p. 384]

51.9 Mosher Gahn’s employer, Ace Accounting and Bookkeeping services, provides long-term disability insurance for employees. Ace pays 70% of the premium and the employee pays 30%. Last year, Mosher had a serious heart attack and could not work at all for nine months. Then, he returned to work on a part-time basis for a couple of months before returning full time almost a year after the heart attack. Which of the following is (are) true regarding Mosher’s long-term disability benefits?

a. Mosher will be taxed on the entire benefit

b. Mosher will pay income tax on 30% of the benefits received

c. Mosher will pay income tax on 70% of the benefits received

d. Mosher will pay no income tax on the benefits received

e. As long as Mosher cannot work, he does not pay tax on benefits earned. Once he begins working again, however, he must pay income tax on the entire benefit received

Answer: C [p. 384]

51.10 Conservative Corp. wants to provide employees with low cost long-term disability coverage. As the company’s financial advisor, you explain that integrating long-term disability coverage with ________ will accomplish that goal

a. Social Security

b. qualified or nonqualified retirement plans

c. worker’s compensation

d. all of the above

e. only a and c

Answer: D [p. 384]

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download