Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 3/5
Life insurance inside a qualified retirement plan is permitted only to a limited or "incidental" extent because:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A qualified retirement plan may include life insurance coverage, but only as an incidental benefit: the plan must primarily provide retirement income, not death protection. Regulators limit the amount of death benefit relative to the retirement fund so that the tax advantages of the qualified plan are not used mainly for life insurance. If the coverage exceeds the incidental limits, the plan's tax treatment can be jeopardized. The death benefit itself is generally paid tax-free, but the incidental rule keeps the plan focused on retirement.
Why the other options are wrong
- B) Life insurance is permitted in qualified plans, subject to the incidental limitation.
- C) Life insurance must be secondary, not primary, to the retirement purpose.
- D) Various types of life coverage can be used within the incidental limits; there is no term-only requirement.
Memory hook
Retirement plan = retirement first, life insurance second; keep death benefits incidental.