Federal Tax Considerations for Life Insurance (Ch.6)
When the owner of a $250,000 life insurance policy died, the beneficiary decided to leave the proceeds of the policy and selected the Interest Settlement Option. If at the time of withdrawal the interest paid was $11,000, the beneficiary would be required to pay income tax on
$11,000
If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually?
$3,000 (10k = principal 3k =interest)
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
All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT:
At distribution all amounts received by employees are tax free
Which of the following terms is used to name the nontaxed return of unused premiums?
Dividend
Which of the following is true regarding taxation of dividends in participating policies?
Dividends are not taxable
In life insurance policies, cash value increases
Grow tax deferred.
All of the following would be different between qualified and nonqualified retirement plan EXCEPT
Taxation on accumulations
How are contributions to a tax-sheltered annuity treated with regards to taxation?
They are not included as income for the employee but taxable upon distribution
Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?
Withdrawals are not taxable
When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?
Interest only