Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 3/5
Life insurance held inside a qualified retirement plan is permitted:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Within qualified retirement plans, life insurance is allowed only as an incidental benefit, not as the plan's principal purpose. Federal rules limit the amount of insurance that may be purchased relative to the plan's accumulated funding - typically no more than 25% of the fund may be used for whole life insurance or 50% for term insurance, measured by premium. This very limited allowance is the subject of objective LIFE-II.G.3.
Why the other options are wrong
- B) Insurance may not be the primary purpose of a qualified plan; the plan must primarily provide retirement benefits.
- C) Participants may have incidental life insurance in their accounts; it is not limited to the trustee.
- D) The death benefit amount is limited relative to plan funding; there is no unlimited allowance.
Memory hook
Life insurance in a retirement plan = incidental side dish, never the main course.