Insurance and Retirement Concepts Review

Vocabulary flashcards covering core life insurance concepts, Florida statutes, IRC Section 1035 rules, qualified retirement plans, and deferred compensation taxation.

Absolute Assignment

The complete, permanent transfer of all ownership rights of a policy to another person or entity (e.g., selling a policy to a third party).

Reinsurance

An arrangement where one insurance company (the ceding company) transfers a portion of its risk or liability to another insurance company (the reinsurer) while remaining directly responsible to the policyholder.

Demutualization

The process by which a mutual insurance company (owned by its policyholders) converts into a stock insurance company (owned by shareholders).

Collateral Assignment

A temporary, partial transfer of policy ownership rights to a lender as security (collateral) for a loan, where full rights return to the policyowner once the loan is paid off.

IRC Section 1035 Qualifying Exchanges

Exchanges qualifying for tax-free status including Life Insurance to Life Insurance, Life Insurance to Annuity, and Annuity to Annuity. An Annuity to Life Insurance exchange is taxable and does not qualify.

Section 1035 Tax Treatment

Tax treatment that does not permanently erase built-in gain, but defers recognition of the gain; the tax basis carries over to the new contract until a taxable distribution occurs.

Florida Policy Loan Interest Rate (Florida Statute 627.4585)

A maximum fixed annual policy-loan interest rate of $10\%$ annually (or an adjustable maximum rate based on Moody's Corporate Bond Yield Average).

Florida Replacement Record Retention (Rule 69O-151.007)

The requirement that replacing insurers retain replacement notices, proposals, and sales records for at least $3\text{ years}$, or until the conclusion of the next regular OIR examination, whichever is later.

Defined Benefit Plan

A retirement plan (pension) that promises a specific, formula-based payout at retirement, where the employer bears the investment risk.

Defined Contribution Plan

A retirement plan ($401(k)$) that specifies the money going in, where the payout depends on contribution levels and investment returns, and the employee bears the investment risk.

Direct Rollover (Trustee-to-Trustee)

A retirement plan rollover from trustee to trustee subject to $0\%$ mandatory tax withholding.

Indirect Rollover

A rollover where the distribution check is paid to the employee, requiring mandatory $20\%$ federal tax withholding and giving the employee $60\text{ days}$ to deposit $100\%$ of the gross distribution to avoid taxes and penalties.

Rule of 55 (IRS Age 55 Exception)

A qualified retirement plan rule allowing an employee who separates from service in or after the calendar year they turn $55$ to take distributions from that employer's $401(k)$ without paying the $10\%$ early withdrawal penalty, though income tax still applies.

Non-Qualified Deferred Compensation Tax Deductions

Employer tax deductions for plan contributions that can only be taken when the executive actually receives the payout and includes it in their taxable gross income.