Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 3/5
A retirement plan sponsor wants to include life insurance coverage inside its qualified retirement plan. Under IRS rules, this is permitted only when the death benefit is:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Life insurance may be included in a qualified retirement plan only as an incidental benefit; the plan's primary purpose must be providing retirement income. The IRS imposes limits (such as the 100-to-1 ratio for term coverage and the 25% of contribution limit for whole life) so that the life insurance does not overshadow the retirement purpose. This is the only limited situation in which life insurance is permitted inside a qualified plan.
Why the other options are wrong
- B) If the death benefit were the plan's primary purpose, the plan would not satisfy the requirements for tax-qualified retirement status.
- C) Incidental life insurance in qualified plans is funded through the same plan contributions that fund retirement benefits, not separately through voluntary employee contributions alone.
- D) The rule concerns the incidental death benefit of life insurance; a fixed annuity is a retirement income contract, not a life insurance death benefit.
Memory hook
Life insurance in a qualified plan is allowed only as a side dish; the retirement benefit is the main course.