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NY Life, Accident, and Health Insurance
Agent/Broker Certification Exam Series
17-55 2025 || Questions & Answers
(Graded A+)
Process 2103 (d-i) - ANSWER - 1. The Superintendent may issue a license to any person, firm or corporation who has complied with the requirements of the Insurance Code, authorizing the licensee to act as agent of any authorized insurer. Every individual applicant for a license under this section and every proposed sub-licensee must be 18 years of age or older at the time of issuance of such license. The person must submit to and pass a written examination required by the Superintendent. Producer Definition (2101(k)) - ANSWER - An insurance producer means an insurance agent, insurance broker, reinsurance intermediary, excess lines broker, or any other person required to be licensed under the insurance laws of this state to sell, solicit or negotiate insurance. Who Should be Licensed (2101(k)(1)) - ANSWER - 1. The term "insurance producer" does not include: An officer, director or employee of a licensed insurer, fraternal benefit society or health maintenance organization or of a licensed insurance producer, provided that the officer, director or employee does not receive any commission on policies written or sold to insure risks residing, located or to be performed in this state and: (a) the officer, director or employee's activities are executive, administrative, managerial, clerical or a combination of these, and are only indirectly related to the sale, solicitation or negotiation of insurance; (b) the officer, director or employee's function relates to underwriting, loss control, Inspection or the processing, adjusting, investigating or settling of a claim on a contract of Insurance; or (c) the officer, director or employee is acting in the capacity of a special agent or agency supervisor assisting licensed insurance producers where the person's activities are limited to providing technical advice and assistance to licensed insurance producers and do not include the sale, solicitation or negotiation of insurance. Home State (2101(l)) - ANSWER - Home state means the District of Columbia or any state or territory of the United States in which an insurance producer maintains his, her or its principal place of residence or principal place of business and is licensed to act as an insurance producer. Negotiate (2101(m)) - ANSWER - Negotiate or negotiation means the act of conferring directly with or offering advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning any of the substantive benefits, terms or conditions of the contract, provided that the person engaged in that act either sells
insurance or obtains insurance from licensed insurers, fraternal benefit societies or health maintenance organizations for purchasers. Sell (2101(n)) - ANSWER - Sell or sale means to exchange a contract of insurance by any means, for money or its equivalent, on behalf of a licensed insurer, fraternal benefit society or health maintenance organization. Solicit (2101(o)) - - ANSWER - Solicit or solicitation means attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular licensed insurer, fraternal benefit society or health maintenance organization. Agent 2101(a) - ANSWER - In this section, insurance agent means any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker. Agent 2101(k) - ANSWER - insurance producer means an insurance agent, insurance broker, reinsurance intermediary, excess lines broker, or any other person required to be licensed under the insurance laws of this state to sell, solicit or negotiate insurance. The applicant must be at least 18 years of age at the time of license issuance. An examination is required for each applicant, except where noted for applicants with a change in residency moving to New York (see code 2103 below). Brokers 2101(c) - ANSWER - a licensed insurance representative who does not represent a specific insurance company, but places business among various companies. Legally, the broker is usually regarded as a representative of the insured rather than the insuring company. Brokers 2101(h) - ANSWER - any licensed attorney at law of this state. Consultants (2107) - ANSWER - The Superintendent may issue an insurance consultant's license to any person, firm, association or corporation who or which has complied with the requirements of this chapter with respect to either: life insurance, meaning all of those kinds of insurance authorized. Any such license issued to a firm or association shall authorize only the members of such firm or association named in such license as sub-licensees to act individually as consultants there under, and any such license issued to a corporation shall authorize only the officers and directors thereof named in such license as sub-licensees to act individually as consultants there under. Adjuster 2101(g) - ANSWER - The Superintendent may, in his discretion require an applicant for a license under this section to present evidence, in such form as he prescribes, that such applicant has been employed, for a period which he deems reasonable, by an insurer, an independent adjuster or a public adjuster, in the performance of duties which in his opinion would provide the applicant with a
establishing legal residence to become a resident licensee. No prelicensing education or examination will be required of that person to obtain any line of authority previously held in the prior state except where the Superintendent determines otherwise by regulation. Nonresident 2136 - Reciprocity - ANSWER - The Superintendent shall waive any requirements for a nonresident license applicant otherwise applicable under this chapter if: (a) the applicant has a current and valid license in his or her home state and is in good standing in his or her home state; (b) the applicant has submitted a completed application in the form prescribed by the Superintendent or submitted the application for licensure submitted to his or her home state; (c) the applicant has paid the fees required by this chapter; and (d) the applicant's home state awards nonresident insurance producer licenses to residents of this state on the same basis as provided in this subsection. Business Entities 2101(p) - ANSWER - A business entity means a corporation, association, partnership, limited liability company, limited liability partnership or other legal entity. Business Entities 2103(e) - ANSWER - Before any original insurance agent's license is issued to a business entity, there must be on file in the office of the Superintendent an application by the prospective licensee in such form or forms and supplements, and containing information the Superintendent prescribes and for each business entity, the sub-licensee or sub-licensees named in the application must be designated responsible for the business entity's compliance with the insurance laws, rules and regulations of this state. Temporary License (2109; Regs. 9, 18, 29, Part 20.1) - ANSWER - A temporary license may be issued in the case of death, service in armed forces or disability. The Superintendent may issue a temporary insurance agent's or insurance broker's license, or both, without requiring the applicant to pass a written insurance examination or to satisfy certain requirements except as to age in the following cases: (1) In the event of the death of a person who at the time of his death was a licensed accident and health insurance agent; (a) to the executor or administrator of the estate of such deceased agent or broker; (b) to a surviving next of kin of such deceased agent or broker, where no administrator of his estate has been appointed and no executor has qualified under his duly probated will; (c) to the surviving member or members of a firm or association, which at the time of the death of a member was such a licensed insurance agent or licensed insurance broker; or
(d) to an officer or director of a corporation upon the death of the only officer or director who was qualified as a sub-licensee or to the executor or administrator of the estate of such deceased officer or director; (2) to any person who may be designated by a person licensed pursuant to this chapter as an insurance agent, or an insurance broker, or both, and who is absent because of service in any branch of the armed forces of the United States. (3) to the next of kin of a person who has become totally disabled and prevented from pursuing any of the duties of his or her occupation, and who at the commencement of his or her disability the license or licenses may be issued for a term not exceeding 90 days from the death of such additional term or terms of 90 days each, not exceeding in the aggregate 15 months. The Superintendent may issue renewal licenses for an additional term or terms of 90 days each exceeding the a Renewal (2103(j); Reg. 5, Part 21.2) - ANSWER - All individual insurance agent licenses must be renewed every two years. Individual licenses are issued with an expiration date determined by the date of birth: The license of an agent born in an even numbered year will expire on the agent's birthday in an even numbered year. The license of an agent born in an odd numbered year will expire on the agent's birthday in an odd numbered year Adjuster licenses are not determined on a birth date renewal. Adjuster licenses expire on December 31st of even-numbered years. Resident Licensees - ANSWER - All licensed agents, brokers, consultants and public adjusters must complete continuing education (CE) requirements as a condition of renewing these licenses. Licensees must complete 15 credits of approved continuing education during each biennial licensing period. After your license has been renewed the first time, continuing education (CE) will always be required upon subsequent renewal or relicensing applications. Credits must be accumulated during the renewal period, which begins with the effective date of the license and ends with the expiration date. CE must be completed before processing the renewal or relicensing application. Assumed Names (2102(f)) - ANSWER - Licensees must notify the Superintendent upon changing his, her or its legal name. Except for an individual licensee's own legal name, no licensee may use any name, in conducting a business regulated by this article that has not been previously approved by the Superintendent.
- had an insurance producer license, or its equivalent, denied, suspended or revoked in any other state, province, district or territory;
- forged another's name to an application for insurance or to any document related to an insurance transaction;
- improperly used notes or any other reference material to complete an examination for an insurance license;
- knowingly accepted insurance business from an individual who is not licensed;
- failed to comply with an administrative or court order imposing a child Penalties (2127): - ANSWER - The Superintendent, in lieu of revoking or suspending the license of a licensee, may in any one proceeding by order, require the licensee to pay a penalty in a sum not exceeding $500 for each offense, and a penalty in a sum not exceeding $2,500 in the aggregate for all offenses. Upon the failure of such a licensee to pay such penalty ordered within 20 days after the mailing of such order, postage prepaid, registered, and addressed to the last known place of business of such licensee, unless such order is stayed by an order of a court of competent jurisdiction, the Superintendent may revoke the license of such licensee or suspend the same for such period as he determines. Superintendent's General Duties and Powers (2404, Financial Services 201, 202, 301) - ANSWER - The Superintendent is empowered to: Examine and investigate into the affairs of any person in order to determine whether the person has violated or is violating the insurance and regulations of this state. Responses to requests for information by the Superintendent should be made not less than 15 business days. The Superintendent is authorized, after notice and hearing, to levy a civil penalty against such person in an amount not to exceed $500 per day for each day beyond the date specified by the Superintendent for response, but in no event will such penalty exceed $10,000. In the event the Superintendent levies five separate civil penalties against any one person within five years for failure to comply with this section, the Superintendent is authorized, after notice and hearing, to levy an additional civil penalty against not to exceed $50,000. The Superintendent is also authorized to levy additional civil penalties not to exceed $50,000, after notice and hearing, against such person for every five subsequent violations of this section within a five year period. Any licensee may surrender his or her license in lieu of payment of any civil penalty imposed by the Superintendent. Certificate of Authority (1102) - ANSWER - The certificate of authority is an insurer's license to transact insurance in this state as an authorized insurer. Solvency (307) - ANSWER - It is required that each insurer file annual financial statements for review by the Superintendent to determine the continued solvency of the insurer.
Unfair Claim Settlement Practices (2601; Reg. 64, Part 216.3-216.6) - ANSWER - Unfair settlement practices include: Knowingly misrepresenting to a claimant pertinent facts or policy provisions related to the coverages at issue. Failing to acknowledge within reasonable time, communications with respect to claims arising out of its policies. Failing to adopt and implement reasonable standards of prompt investigation of claims arising out of an insurer's policies. Claims must be promptly investigated to determine liability. Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims submitted in which liability has become reasonable clear. Compelling policyholders to institute suit to recover amounts due under its policies by offering less than the amounts ultimately recovered in suit brought by them Appointment of Agent - ANSWER - The appointment must be made 15 days from the date an agency contract is executed, or the first application is submitted Termination of Agent Appointment (2112(d); Regs. 9, 18, 29, Part 20.2) - ANSWER - Every insurer, fraternal benefit society or health maintenance organization or insurance producer or the authorized representative of the insurer, fraternal benefit society, health maintenance organization or insurance producer doing business in this state must, upon termination of a certificate of appointment, file with the Superintendent within 30 days a statement, in such form as the Superintendent may prescribe, the facts relative to such termination for cause. Misrepresentation (2123; Reg. 64, Part 216.3) - ANSWER - It is a violation for an agent to make false or misleading statements or unfair coverage comparisons. False Advertising (2603) - ANSWER - It is a violation to make false or misleading statements regarding the advertising of insurance products. A producing agent may not issue any illustration or statement used to advertise his/her business unless the agent is authorized to transact those lines of authority. Defamation of Insurer (2604) - ANSWER - It is any false or malicious communication, written or oral, that injures another's reputation, fame or character. Individuals and companies both can be defamed. Unethical agents practice defamation by spreading rumors or falsehoods about the character of a competing agent or the financial condition of another insurance company. Both of these actions are considered illegal. Unfair Discrimination (2606-2608, 2612) - ANSWER - Neither agents nor insurance companies are permitted to discriminate against perspective insureds. This means that a person cannot be given a different rate for coverage than another person in identical circumstances. They may not discriminate against a person solely because of an applicants' race, religion, occupation, where they live or their financial status.
effectuating any insurance, health maintenance organization or annuity contract or shall in this state act as insurance broker in soliciting, negotiating or in any way effectuating any insurance, health maintenance organization or annuity contract of, or in placing risks with, any such insurer or health maintenance organization, or shall in this state in any way or manner aid any such insurer or health maintenance organization in effecting any insurance, health maintenance organization or annuity contract. Producer Compensation Transparency - ANSWER - "Producer Compensation Transparency," requires all New York-licensed producers to offer unrequested information about their compensation to their clients. If a client asks for more information, the producer must make a second highly detailed disclosure. Cyber Security Requirements for Financial Services Companies (Reg 23 ) - ANSWER - Is designed to promote the protection of customer information as well as the information technology systems of regulated entities. This regulation requires each company to assess its specific risk profile and design a program that addresses its risks in a robust fashion. Senior management must take this issue seriously and be responsible for the organization's cybersecurity program and file an annual certification confirming compliance with these regulations. A regulated entity's cybersecurity program must ensure the safety and soundness of the institution and protect its customers. Fair Credit Reporting Act (FCRA) - ANSWER - federal law that regulates the collection of consumers' credit information and access to their credit reports. It was passed in 1970 to address the fairness, accuracy, and privacy of the personal information contained in the files of the credit reporting agencies. Workers Compensation - ANSWER - Eligibility - All work injuries that occur during the course of work are covered under New York workers' compensation law. New York, like most states, also covers occupational diseases, which are illnesses that arise during the course of employment. Typical occupational diseases include asbestosis and hearing loss. Industrial (work-related) injuries can include bone fractures, sprains, burns, cuts, amputations, and other injuries that cause immediate harm. If your injury requires more than simple first aid, and it occurred in the course of your employment, you likely have a workers' compensation claim. Activities that happen outside the scope of your employment, such as commuting to and from work, are not covered. In other words, injuries or diseases arises from these activities do not give rise to a workers' compensation claim. Benefits - If you have an allowed workers' compensation claim, you will begin receiving workers' compensation benefits immediately. Your employer's workers compensation insurance carrier will pay medical bills for treatment related to your industrial injury. If you are unable to work due to your work-related injury or occupational disease for more than seven days, your employer's workers' compensation insurance carrier will begin payment of cash benefits to compensate for your lost wages. These temporary disability benefits equal two-thirds of your average weekly wage, multiplied by the
percentage of your disability. Cash benefits are subject to a weekly maximum established by the state each year. As of July 1, 2017, the maximum benefit is $870. per week. These payments are usually paid every other week. The insurance carrier will continue to make these payments to you until your workers' compensation claim is closed or you are able to return to work, whichever occurs first. If your doctor f Death Benefit (face amount/face value/coverage) - ANSWER - The amount paid to beneficiaries when a policyholder dies. Beneficiary - ANSWER - The person(s) who receive the death benefit. They are selected by the policyholder. Premium - ANSWER - The regular payment made toward the insurance policy. These are typically monthly. Cash value - ANSWER - A tax-deferred savings account that are included in permanent life insurance policies. The cash value is basically an investment account inside of your straight life insurance policy. This account will grow according to a guaranteed rate over the course of the policy length. The rate of return will typically be large enough that when you turn 100 the cash value account will equal the value of the death benefit. At any point, you can use the cash value account for a variety of reasons, including: Universal life insurance - ANSWER - has a cash value, just like a whole life insurance policy. Your premiums go toward both the cash value and the death benefit. But there's a twist: the policyholders of universal life policies can change the premium and death benefit amounts without getting a new policy. Basically, although you have a minimum premium to keep the policy in force, you can use the cash value to pay the premium. That means if you have enough money in the cash value, you can use that to skip premium payments entirely, letting the accrued interest do the work. the cash value of a universal life insurance policy has an interest rate that's sensitive to current market interest rates. If the interest rate being credited to your policy decreases to the minimum rate, your premium would have to increase to offset the reduced cash value. You can also adjust the death benefit within limits outlined in your policy. Increasing it may subject you to further underwriting, while there may be fees to decrease it. If your financial situation changes, the ability to change the death benefit amount within your policy is appealing. While this can be done with term life insurance policies, this feature is one of the main selling points of a universal policy. Variable Life Insurance - ANSWER - similar to whole life insurance in that they both have a cash value, but the functions of the cash values are quite different.
there is no medical exam with simplified issue life insurance, the policies tend to be more expensive than term policies. Guaranteed issue life insurance - ANSWER - Guaranteed issue life insurance takes the concept of simplified issue life insurance - forgoing the health exam - and takes it a step further in that you don't have to answer any questions about your health, either. As long as you can pay the premium, the insurer will cover you, needing only your age, sex, and state of residence. That makes it appealing for older people, whose declining health makes it prohibitively expensive to get coverage with another insurance types. Guaranteed issue life insurance is useful for elderly applicants, but others can likely get more life insurance coverage at a lower cost with a different policy type. Just like with simplified issue life insurance, the lack of insight into your health conditions that a medical exam and interview would provide means that you're going to be paying more for coverage. Final expense insurance - ANSWER - Final expense insurance is a unique type of policy. It covers the cost of anything associated with your death, whether its medical costs, a funeral, or cremation - whatever your literal final expenses are. It's usually only issued to people of a certain age and the policy is valid up to a certain age. Like other permanent life insurance policies, there's a cash value that can grow over time. Final expense insurance is a simplified issue policy in most cases, but if you don't pass the health questionnaire you'll be placed in a guaranteed issue policy instead. Final expense insurance is usually attractive to older people who don't have other life insurance coverage (maybe they outgrew their term life policy) and don't have enough savings to pay for their own funeral, which can cost upwards of $8,000.Coverage is usually for small amounts, from $5,000 to $25,000, to cover those expenses. It's good if you don't have another way to pay for your funeral and don't want to burden your family with the costs. However, it has the same drawbacks as guaranteed issue life insurance: higher life insurance premiums for relatively low coverage amount. If you or your family are able to pay for a funeral through other means, that's your best bet. Term Life Insurance - ANSWER - Term life insurance lasts for a set number of years before it expires. If you die before the term is up, a set amount of money, known as the death benefit, is paid to your designated beneficiary. Term life is considered the simplest, most accessible insurance policy. When you make your payments (known as your premium), you're simply paying for the death benefit that goes to your beneficiaries in the event of your death. The death benefit can be paid out as a lump sum, a monthly payment, or an annuity. Most people elect to receive their death benefit as a lump sum. Term life insurance policies are more affordable than other types of life insurance policies, usually costing between $30-40 a month for a 30-year, $500,000 policy for healthy people in their 20s and 30s. They expire at the end of the term, which can last up to 30 years.
Level Term Life Insurance - ANSWER - A term life policy guaranteed to have the premium remain the same for the duration of the contract. This is what most people refer to as term life. Purchased for a set number of years (5, 10, 30 years, for example), the premium and the death benefit remains the same (level) until the end of the term. Many of these policies can be converted to a permanent policy at the end of the term, or can be canceled at any time. Annual renewable term life insurance - ANSWER - Annual renewable life insurance works just like term life policies that have 10-, 20-, and 30-year terms. If you die while the term is active, your beneficiaries get a death benefit from the carrier. However, the term in an annual renewable term policy only lasts one year, after which it's renewed for another year, for a set number of years. Traditional term life insurance policies typically have a guaranteed level premium, meaning that your premium rates at the time of purchase are the same throughout the term of the policy. (Guaranteed level premium policies average out the cost over the life of the policy.) Your premiums will only go up if you let your policy lapse and try to purchase the same policy again. Convertible term - ANSWER - A convertible life insurance policy is simply a term life insurance policy that can convert to a permanent life insurance policy. Here's how it works: Let's say a 35-year-old man buys a 30-year convertible term life insurance policy. At age 45, he decides to convert that policy to a permanent life insurance policy. He will pay a substantially larger premium as a result but have coverage for the rest of his life. Most convertible policies have a time limit to convert, usually 10 years. Often, when the conversion option is close to expiring, life insurance companies let policyholders know that time is running out to execute this option. level-premium term insurance - ANSWER - Level-Premium Insurance is a type of life insurance in which premiums stay the same price throughout the term, while the amount of coverage offered increases. Premium payments often start at a higher level than policies with similar coverage but are ultimately worth more than competitors as policyholders experience increased coverage over time at no additional expense. Terms are usually 10, 15, 20 and 30 years, based on what the policyholder requires. Whole Life Insurance - ANSWER - considered a permanent life insurance policy because if does not expire. It has a death benefit but also a cash value, which is a tax- deferred savings account that is included in the policy. The cash value accrues interest at a predetermined fixed rate. Each month, a certain portion of your premium will go into the cash value of the policy, which offers a guaranteed rate of return (The exact amount that goes into savings is determined by your individual policy). The policy's cash value grows over time.
Adjustable life insurance policies are attractive to those who want the protection and cash value benefits of permanent life insurance yet need or want some level of flexibility with policy features. Using the ability to modify premium payments and face amounts, policyholders may customize their coverage as their lives change. For example, a policyholder may want to increase the face amount upon getting married and having children. An unemployed person may want to reduce premiums to accommodate a restricted budget. As with other permanent life insurance, adjustable life insurance has a savings component that earns cash value interest. Today, most adjustable life insurance cash value accounts have a guaranteed rate of interest. Universal Life Insurance - ANSWER - permanent life insurance with an investment savings element and low premiums like term life insurance. Most universal life insurance policies contain a flexible premium option. However, some require a single premium (single lump-sum premium) or fixed premiums (scheduled fixed premiums). Policyholders have the flexibility to adjust their premiums and death benefits. Universal life insurance premiums consist of two components: a cost of insurance (COI) amount, and a saving component, known as the cash value. The cost of universal life insurance is the minimum amount of a premium payment required to keep the policy active. can accumulate cash value, which earns interest based on the current market or minimum interest rate. Policyholders may borrow against the accumulated cash value without tax implications. Joint-Life (First to die) - ANSWER - combines life insurance for you and your spouse into one joint policy. Both individuals are listed as insured parties on the policy. When the first person dies, the policy's death benefits will be paid out to the survivor. The policy also terminates at that point, leaving the surviving spouse with no life insurance coverage. Survivorship (Second-to-Die) Life Insurance - ANSWER - Second-to-die insurance is a type of life insurance on two people (usually married) that provides benefits to the beneficiaries only after the last surviving person on the policy dies. This differs from regular life insurance in that the surviving partner doesn't receive any benefits after the spouse dies. Thus, second-to-die insurance is used for estate planning. Life insurance on minors (3207(b)) - ANSWER - A minor above the age of fourteen years and six months shall be deemed competent to enter into a contract for, be the owner of, and exercise all rights relating to, a policy of life insurance upon the life of the minor or upon the life of any person in whom the minor has an insurable interest, but the beneficiary of such policy may be only the minor or the parent, spouse, brother, sister, child or grandparent of the minor.
Fixed (equity) indexed life - ANSWER - Equity-indexed universal life insurance is a type of permanent life insurance policy that ties its accumulation to a stock market index. Unlike variable universal life insurance, which allows policyholders to invest a portion of the cash value into a range of funds and stocks with various risk profiles, equity-indexed universal life insurance offers policyholders the opportunity to place the cash value in an equity index account, which pays interest according to a market index without actually investing the money in the market. An equity-indexed life policy receives gains on, but no losses its cash value if the market goes down. This type of policy tends to have lower premiums than other forms of whole life insurance. Equity-indexed universal life insurance is more complex than other forms of life insurance and offers no guarantees as to market returns. Group life insurance policies - ANSWER - A type of life insurance in which a single contract covers an entire group of people. Typically, the policy owner is an employer or an entity such as a labor organization, and the policy covers the employees or members of the group. Group life insurance is often provided as part of a complete employee benefit package. In most cases, the cost of group coverage is far less than what the employees or members would pay for a similar amount of individual protection. Characteristics of Group Plans - ANSWER - differs from individual insurance in several respects. A distinctive characteristic is the coverage of many persons under one contact. A master contract is formed between the insurer and the group policy owner for the benefit of the individual members. In most plans, the group policy owner is the employer. Employees receive a certificate of insurance that shows they are insured. A second characteristic is that group insurance usually costs less that comparable insurance purchased individually. Employers usually pay part or all of the cost, which reduces or eliminates premium payments by the employees. In addition, administrative and marketing expenses are reduced as a result of mass distribution methods. Another characteristic is that individual evidence of insurability is usually not required. Group selection of risks is used, not individual selection. The insurer is concerned with the insurability of the group as a whole rather with the insurability of the single member within the group. Term insurance is the most common form of group life insurance. Group term life is typically provided in the form of yearly renewable term insurance. When group term insurance is provided through your employer, the employer usually pays for most (and in some cases all) of the premiums. The amount of your coverage is typically equal to one or two times your annual salary. Group term coverage remains in force until your employment is terminated or until the specific term of coverage ends. You may have the option of converting your group coverage to an individual policy if you leave your employer. However, most people
company's employees. It is one tool that can help employers attract and retain good employees. defined contribution plan - ANSWER - retirement plan that's typically tax-deferred, like a 401(k) or a 403(b), in which employees contribute a fixed amount or a percentage of their paychecks to an account that is intended to fund their retirements. The sponsor company will, at times match a portion of employee contributions as an added benefit. These plans place restrictions that control when and how each employee can withdraw from these accounts without penalties. Defined contribution (DC) retirement plans allow employees to invest pre-tax dollars in the capital markets where they can grow tax-deferred until retirement withdrawals. 401(k) and 403(b) are two popular defined-contribution plans commonly used by companies and organizations to encourage their employees to save for retirement. DC plans can be contrasted with defined benefit (DB) pensions, whereby retirement income is guaranteed by an employer. With a DC plan, there are no guarantees, and participation is both voluntary and self-directed. Defined Benefit Plan - ANSWER - employer-sponsored retirement plan where employee benefits are computed using a formula that considers several factors, such as length of employment and salary history. The company administers portfolio management and investment risk of the plan. There are also restrictions on when and by what method an employee can withdraw funds without penalties. Benefits paid are typically guaranteed for life and rise slightly to account for the increased cost of living. A defined-benefit plan is an employer-based program that pays benefits based on factors such as length of employment and salary history. Pensions are defined-benefit plans. In contrast to defined-contribution plans, the employer, not the employee, is responsible for all of the planning and investment risk of a defined-benefit plan. Benefits can be distributed as fixed-monthly payments like an annuity or in one lump- sum payment. The surviving spouse is often entitled to the benefits if the employee passes away. 401k - Tax Sheltered Annuities - ANSWER - A 401(k) plan is a tax-advantaged, defined- contribution retirement account offered by many employers to their employees. It is named after a section of the U.S. Internal Revenue Code. Workers can make contributions to their 401(k) accounts through automatic payroll withholding, and their employers can match some or all of those contributions. The investment earnings in a traditional 401(k) plan are not taxed until the employee withdraws that money, typically after retirement. In a Roth 401(k) plan, withdrawals can be tax-free. A 401(k) plan is a company-sponsored retirement account that employees can contribute to. Employers may also make matching contributions.
There are two basic types of 401(k)s—traditional and Roth—which differ primarily in how they're taxed. In a traditional 401(k), employee contributions reduce their income taxes for the year they are made, but their withdrawals are taxed. With a Roth, employees make contributions with post-tax income, but can make withdrawals tax-free. Self-employed Plans (Keogh plans) - ANSWER - Type of retirement plan designed for self-employed individuals and their employees. It can be set up by small businesses that are structured as LLCs, sole-proprietorships, or partnerships. A Keogh is similar to a 401(k) for very small businesses, but the annual contribution limits are higher than 401(k) limits. Simplified Employee Pension (SEP) - ANSWER - retirement plan designed for self- employed persons, partnerships, sole proprietors, independent contractors, and owner- employees of an unincorporated trade or business; however, it may be set up by any type of business. A SEP is an easy method for a small employer to establish a retirement plan for employees without the complex administration and expense found in qualified retirement plans. In fact, an employer may establish a SEP only if that employer has no qualified retirement plan in effect. Under a SEP, the employer may make a contribution of up to the lesser of 15% or $30,000 of compensation to IRAs established in each employee's name. Hence, such an arrangement is known as a SEP-IRA. When made, these contributions are owned in their entirety by the employee, and they may be withdrawn and/or transferred by the employee at any time. Contributions to a SEP by the employer are discretionary, but must be deposited into each eligible employee's IRA when made. Because these accounts are IRAs, the amounts therein are subject to all IRA rules regarding transfer, withdrawal and taxation. Savings Incentive Match Plan for Employees (SIMPLE) - ANSWER - Established by the Small Business Protection Act of 1996, a SIMPLE may be set up by employers who have no other retirement plan and who have 100 or fewer employees with at least $5,000 in compensation for the previous year. They may be structured as an IRA or as a 401(k) plan. Employees may defer any percentage of compensation up to $6,500 per year to the SIMPLE, and the employer is required to make a matching contribution of up to 3% of the employee's pay based on that election. The employer may reduce the maximum matching percentage in any two years out of five. Alternatively, the employer may establish a uniform 2% of salary contribution per year for all eligible employees regardless of whether they contribute to the SIMPLE or not. 457 Plan - ANSWER - Non-qualified, deferred compensation plan established by state and local governments for tax-exempt government agencies and tax exempt employees. While governmental 457 plans have special catch-up provisions for those age 50 or older, they enjoy an even greater contribution amount in the three years before
