7. Federal Tax Considerations For Life Insurance and Annuities

The 10% early withdrawal penalty from an IRA can be waived for

A. Catastrophic medical expenses

A policy owner cancels his life policy but instructs the insurance company to transfer the cash value of the policy to an annuity. This nontaxable transaction is called a

B. 1035 exchange

Excess contributions to a Roth IRA are subject to what tax penalty

B. 6%

Which of the following is true regarding taxation of policy dividends

B. Dividends are not taxable

When a beneficiary in life insurance policy receives payments consisting of both principal and interest portions, what will be taxed as income

B. Interest only

If $100,000 of life insurance proceeds were used in a settlement option which paid $13,000 per year for 10 years, which of the following amounts would be taxable annually

A. $3,000

Which of the following is NOT true regarding policy loans

A. Money borrowed from the cash value is taxable

For personal life insurance, the lump-sum death benefit is received

A. Tax free

Avoiding tax consequences when transferring assets from one IRA to another can be accomplished by which of the following

B. Partial distribution of funds

In life insurance policies, cash value increases are

B. Tax deferred

Which of the following taxation principles applies to annities

B. Tax-deferred accumulation

Which method is used to determine the taxable portion of each annuity payment

A. The exclusion ratio

If a life policy does not pass the 7-pay test, that policy

C. Becomes a Modified Endowment Contract

Generally, the premium paid for personal life insurance is

C. Not tax deductible

The cash value under MEC accumulates

C. On tax-deferred basis