Life insurance coverage included inside a qualified retirement plan, such as a pension or profit-sharing plan, 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 on a limited, incidental basis — the death benefit and the premiums must be incidental to the plan's primary retirement purpose. The IRS tests, such as the 100-to-1 ratio or the 25% of contribution rule, enforce that the plan remains primarily a retirement vehicle rather than a life insurance purchase device. Coverage is not prohibited outright, is not unlimited, and is not restricted to the employer's life. This extremely limited allowance explains why qualified plan life insurance is a niche product.
Why the other options are wrong
- B) Incidental life insurance is permitted in qualified plans under IRS tests. It is not categorically prohibited by federal law.
- C) The incidental-limitation tests, such as the 100-to-1 ratio and the 25% of contribution rule, cap how much life insurance a plan may hold.
- D) The incidental coverage may be written on the lives of plan participants, not only on the life of the employer.
Memory hook
Retirement plan first, insurance second — the IRS lets life coverage ride along only as a sidecar.