PHP Ch. 6
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 value was $18,000. What part of the surrender value would be income taxable?
$3,000
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
A policy owner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called -
1035 exchange
An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay?
50% tax on the amount not distributed as required
Which of the following is NOT an allowable 1035 exchange?
A whole life insurance policy is exchanged for a term insurance policy
If an annuitant dies during the accumulation period, what benefit (if any) will be included in the annuitant's estate?
Accumulated cash benefit
Which concept is associated with "exclusion ratio"?
Annuity payments
Which of the following is NOT true of the Section 1035 policy exchanges?
Any exchange made under Section 1035 of the Internal Revenue Code must be completed within 30 days
Which of the following terms is used to name the non-taxed return of unused premiums?
Dividend
Which of the following is true regarding taxation of dividends in participating policies?
Dividends are not taxable
Which of the following is used to determine the annuity amounts that are not taxable?
Exclusion ratio
What type of tax is associated with death proceeds from a life insurance policy?
Federal estate tax
If taken as a lump sum, life insurance proceeds to beneficiaries are passed -
Free of federal income taxation
Life insurance death proceeds are -
Generally not taxed as income
In life insurance policies, cash value increases -
Grow tax deferred
An insured has a Modified Endowment Contract. He wants to with draw some money in order to pay medical bills. Which of the following is true?
He will have to pay a penalty if he is younger than 59 1/2
If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?
It's only taxable if the cash value exceeds the amount paid for premiums
Which of the following is TRUE regarding whole life insurance?
Lump-sum death benefits are not taxable
Which of the following is true regarding 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 -
Modified endowment contract
Death benefits payable to a beneficiary under a life insurance policy are generally -
Not subject to income taxation by the Federal Government
What type of annuity will cause immediate taxation of the interest earned?
Surrendering the annuity for cash
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
Which of the following best describes taxation during the accumulation period of an annuity?
Taxes are deferred
J transferred his life insurance policy to his son two years before his death. Which of the following is true?
The entire face value of the policy will be included in J's taxable estate
What method is used to determine the taxable portion of each annuity payment?
The exclusion ratio
An annuitant dies before the effective date of a purchased annuity. Assuming that the annuitant's wife is the beneficiary, what will occur?
The interest will continue to accumulate tax deferred
When would life insurance policy proceeds be included in the insured's taxable estate?
When there are any incidents of ownership at the time of death
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. (LIFO)
What is the penalty for IRA distributions that are below the required minimum for the year?
50%
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a -
Settlement option
An applicant buys a non qualified annuity, but dies before the starting date. Which beneficiaries would the interest accumulated in the annuity NOT be taxable?
Spouse
