Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Regarding life insurance inside a qualified retirement plan, which statement is correct?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Qualified retirement plans are designed primarily to provide retirement income, so life insurance coverage inside them is permitted only on a very limited, incidental basis (under the incidental death benefit rules). The coverage must be subordinate to the plan's retirement purpose. Employer premiums may be deductible subject to plan rules, and death benefits may be income-tax-free only if structured correctly and paid under the plan's provisions.
Why the other options are wrong
- B) Life insurance is not absolutely prohibited; it is permitted in limited, incidental amounts.
- C) Deductibility is subject to the incidental limits and plan rules, not unlimited.
- D) Proceeds may be income-tax-free if paid properly to a named beneficiary, depending on the policy and payout structure.
Memory hook
Life insurance in a qualified plan? Only as a small side dish - the retirement meal must stay the main course.