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This chapter broadens your life insurance knowledge into territory beyond the individual policy. You'll learn how group life insurance and employer-sponsored plans work, how qualified retirement plans are structured and taxed, and how the Social Security system determines eligibility for retirement, disability, and survivor benefits. The chapter closes by walking through the taxation rules that apply to life insurance premiums and proceeds, to modified endowment contracts, and to annuities.
| Term | Definition |
|---|---|
| FIFO (First In, First Out) | The principle under which the funds paid into a policy first are assumed to be paid out first |
| Gross income | A person's income before taxes or other deductions |
| LIFO (Last In, First Out) | The principle applied to certain life insurance and annuity products under which the funds paid in last are assumed to be paid out first |
| Pretax contribution | A contribution made before federal and/or state taxes are deducted from earnings |
| Surrender | The early termination of a policy by the policyowner |
| Tax deductible | A reduction of taxable income, resulting in a lower tax liability |
| Taxable | Subject to taxation, payable to the state and/or federal government |
| Tax deferred | Taxes on investments or gains, such as interest or dividends, are paid at a future date rather than in the period in which they were earned |
Terms to Know