Chapter 5 Review

Group carve-out plans enable an employer to overcome the substantial group term life insurance limitations that result from the various requirements that it must meet.  For the employer, the benefits of a group carve out plan include an avoidance of discrimination concerns, the providing of additional benefits without an increase in cost, the ability to choose which executives may participate and a current income tax deduction. By using a group carve-out plan, the executive's coverage provides post-retirement death benefits, tax-deferral of earnings on voluntary contributions, portability and supplemental retirement income.  

These plans provide substantial advantages to both employers and executives without any significant disadvantages.

Chapter 5 Review Questions

What are the consequences if a group term life insurance plan is deemed discriminatory?

A.     The employer is fined
B.     Its tax advantages may be lost
C.     The plan is disqualified
D.     The employees are subject to tax audit

In a group carve out plan group term life insurance amounts in excess of ________ are replaced by individual life insurance policies.

A.     $50,000
B.     $75,000
C.     $100,000
D.     $250,000

The employer’s premium for group term life insurance is tax-deductible to the employer as:

A.     additional compensation
B.     bonus compensation
C.     an employee benefit
D.     a dividend

The employer’s premium for the individual life insurance policies issued in the group carve out plan is tax-deductible to the employer as:

A.     compensation
B.     an employee benefit
C.     a dividend
D.     a charitable contribution

What happens to the $50,000 of group term life insurance in a group insurance plan with a group carve out if the executive terminates his service with the employer?

A.     The coverage terminates
B.     The coverage is portable and stays with the executive
C.     The coverage reduces by 50%
D.     The coverage becomes fully paid-up for the executive