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                              9th Edition
                       College Course Materials

                          Deanna L. Sharpe, Ph.D., CFP®, CRPC®, CRPS®
                                       Associate Professor
                                     CFP® Program Director
                             Personal Financial Planning Department
                                 University of Missouri-Columbia

Please Note: Correct answers for each question are indicated in bold type. After each question,
the number of the page containing information relevant to answering the question is given. When
a calculation is necessary or the reasoning behind a given answer may be unclear, a brief
rationale for the correct answer is also given.

                             Part B: Employee Benefit Planning

                                        Health Coverage

Chapter 48: Long-Term Care Plan


48.1   COBRA continuing coverage requirements apply to long term care plans

48.2   The employee’s share of premiums for purchase of an employer-provided long term care
       plan can be paid from a cafeteria or flexible spending type of account

48.3   Subject to an age-based limitation, a self-employed person can deduct 100% of premiums
       for a qualified long term care contract.


   48.1 False [p. 415]
   48.2 False [p. 415]
   48.3 True [p. 416]

Multiple Choice

48.4   Tax benefits for a long term care plan are

       a.   premium costs deducible to the employer
       b.   premiums and benefits are nontaxable to employees within certain limits
       c.   premiums and benefits are nontaxable to beneficiaries within certain limits
       d.   all of the above
       e.    only a and b

Answer: D [p. 415]

48.5   An employer-provided long term care plan is useful
       a. when the employee group is relatively older
       b. because it reduces cost of obtaining coverage
       c. because employee share of premium can be paid with a flexible spending account or
          cafeteria plan
       d. a and b
       e. a and c

Answer: D [p. 415]

48.6   A long term care policy contract has the same tax treatment as an accident and health
       insurance contract if

       a.   the only insurance provided is qualified long term care services
       b.   refunds of premium are paid to the employee
       c.   the contract has no cash surrender value
       d.   a and b
       e.   a and c

Answer: E [p. 416]


48.7   B. G. Hart, owner of Beneficial Industries, has 50 employees. His 5 top managers are in
       their 50’s. Ten of his assistant manages are in their mid to late 40’s. Average age of his
       line workers is 29. Advantages of offering long term care insurance as an employee
       benefit include all but which of the following?

       a. he can offer employee a tax-favored benefit that employees might not be able to afford
          on their own
       b. all of his employees are likely to appreciate employer assistance with long term care
       c. Beneficial’s payment of the premium will not result in taxable income to employees
       d. employees or their beneficiaries will receive plan benefits tax-free
       e. Beneficial gets a tax deduction for making premium payments

Answer: B [p. 416]

48.8   Abigail Thompson is a self-employed business woman. At age 62, she is interested in
       purchasing qualified long-term care insurance through her business. If she does so,

       a. she cannot deduct any premiums costs but may get a lower price
       b. she can deduct 100% of premiums regardless of cost
       c. she can deduct 50% of premiums regardless of cost
       d. she can deduct 100% of premiums, limited first to the 7.5 percent of adjusted gross
          income floor under the tax code
       e. she can deduct 100% of premiums after she reaches age 65

Answer: D [p. 416]
48.9   Maria Estaban has a flexible spending plan at her place of employment. Maria can use
       funds from her flexible spending plan to pay her share of the premiums for long term care
       insurance offered as an employer-sponsored plan.

       a. true
       b. false

Answer: A [p. 315]

48.10 The owner of Aging Industries is interested in offering his workforce long term care
      insurance as an employee benefit. The average age of his workforce is 52 and several
      employees are already struggling with finding care for aging parents. The owner of Aging,
      however, is concerned that meeting COBRA provisions coupled with the high cost of long
      term care insurance will place a heavy burden on company finances since a relatively large
      number of employees are retiring this year. The owner of Aging Industries’ concern about
      this high cost is valid.

       a. true
       b. false

Answer: B [p. 415]

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