Federal tax considerations for life insurance quiz

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?

$3,000

Which of the following statements regarding the taxation of modified endowment contracts is FALSE?

Withdrawals are not taxable

Which of the following describes the taxation of an annuity when money is withdrawn during the accumulation phase?

Withdrawn amounts are taxed on a last in, first out basis.

Which of the following is true regarding taxation of dividends in participating policies?

Dividends are not taxable.

Life insurance death proceeds are

Generally not taxed as income

In life insurance policies, cash value increases

Grow tax deferred.

During partial withdrawal from a universal life policy, which portion will be taxed?

Interest

What is the main purpose of the Seven-pay test?

It determines if the insurance policy is a MEC.

Which of the following statements is TRUE concerning whole life insurance?

Lump-sum death benefits are not taxable

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an

Modified Endowment Contract

Which of the following is NOT true regarding policy loans?

Money borrowed from the cash value is taxable.

Death benefits payable to a beneficiary under a life insurance policy are general

Not subject to income taxation by the Federal Government

During the accumulation period in a non qualified annuity, what are the tax consequences of a withdrawal?

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 1/2

What kind of policy allows withdrawals or partial surrenders?

Universal Life

Which of the following terms is used to name the non taxed return of unused premiums?

dividend