Federal Tax Considerations for Life Insurance and Annuities

Life insurance death proceeds are a. generally not taxed as income b. taxable to the extent that they exceed 7.5% of income c. taxed as capital gain d. taxed as ordinary income

a. generally not taxed as income

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a a. settlement option b. nontaxable exchange c. nonforfeiture option d. rollover

a. settlement option

If taken as a lump sum, life insurance proceeds to beneficiaries are passed a. without interest b. free of federal income tax c. tax deductible d. part tax free and part taxable

b. free of federal income tax

In a direct rollover, how is the money transferred from one plan to the new one? a. from the original plan to the original custodian b. from trustee to trustee c. from trustee to the participant d. from the participant to the new plan

b. from trustee to trustee

Traditional IRA contributions are a. partially tax deductible depending on income level b. tax deductible c. deducted based on income level d. never tax deductible

b. tax deductible

Who can make a fully deductible contribution to a traditional IRA? a. someone making contributions to an educational IRA b. a person whose contributions are funded by a return on investment c. an individual not covered by an employer-sponsored plan who has earned income d. anybody

c. an individual not covered by an employer-sponsored plan who has earned income

Which is true regarding taxation of dividends in participating policies? a. dividends are taxable in some life insurance policies and nontaxable in participating policies b. dividends are considered income for tax purposes c. dividends are not taxable d. dividends are taxable only after a certain amount is accumulated annually

c. dividends are not taxable (interest earned on dividends is subject to taxation as ordinary income)

Which concept is associated with "exclusion ratio"? a. dividend distribution b. how exclusion riders affect an insurance premium c. policy provisions d. annuity payments

d. annuity payments

Which is not true regarding policy loans a. policy loan may be repaid after the policy is surrendered b. money borrowed from the cv is taxable c. policy loans can be repaid at death d. an insurer can charge interest on outstanding policy loans

b. money borrowed from cv is taxable

What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary? a. capital gains tax on distributions and no penalty b. capital gains tax on distributions plus 10% penalty c. income tax on distributions and no penalty d. income tax on distributions plus 10% penalty

c. income tax on distributions and no penalty

If an insured surrenders his life policy, which statement is true regarding the cv of the policy? a. it is taxable only if it exceeds the amounts paid for premiums by 50% b. it is automatically taxable c. it is only taxable if the cash value exceeds the amount paid for premiums d. it is not considered to be taxable

c. it is only taxable if the cv exceeds the amount paid for premiums

Which of the following is used to determine the annuity amounts that are not taxable? a. pro rata ratio b. exclusion index c. market-adjusted annuities index d. exclusion ratio

d. exclusion ratio

What portion of an annuity is taxable?

payment amount minus the expected return of the principal paid in is the amount that is taxable

Which is not an allowable 1035 exchange? a. whole life exchanged for a term insurance b. whole life exchanged for universal c. annuity exchanged for another annuity d. life exchanged for an annuity

a. whole life insurance policy is exchanged for a term insurance policy