Ch.7
12 months
How long must an individual's disability be expected to last in order to qualify for Social Security disability benefits?
6
How many quarters of coverage are required for currently insured status under Social Security?
6
How many quarters of credit must an individual have to be currently insured under Social Security?
29 months
Walt is totally disabled and has applied for Social Security disability benefits. How long must Walt wait to be eligible to receive full Medicare benefits?
Policy loans are not taxable.
What are the tax consequences of a policy loan on a whole life insurance policy?
The gift-giver pays tax, but only up to the amount exceeding the federal gift limit.
What are the tax implications when personal life insurance is given as a gift and the recipient owns the policy, but the gift-giver pays the premiums?
All of the above
What is the general rule for taxation of personal life insurance policy proceeds?
Accelerated benefits are received income tax-free as long as the distribution is qualified.
Which of the following statements best describes how accelerated benefits from a personal life insurance policy are taxed?
If the policy cash value is surrendered, the interest earned on the cash value is taxable as ordinary income.
Which of the following statements best describes how cash value in a life insurance policy is taxed?
The policy proceeds are paid out in a lump-sum.
All of the following are reasons the face amount of a life insurance policy may be subject to tax, EXCEPT:
If a business purchases group insurance for the benefit of its employees, employer-paid premiums are not tax-deductible.
All of the following are true regarding business life insurance, EXCEPT:
The transfer of value rule permits a tax-free transfer of wealth.
All of the following are true regarding the transfer for value rule, EXCEPT:
Supplemental medical insurance
All of the following benefits are provided by Social Security, EXCEPT:
A nurse practitioner who owns their own practice
All of the following individuals would not be covered by Social Security, EXCEPT:
Social Security disability benefits cover partial and short-term disabilities.
All of the following statements are true regarding Social Security disability benefits, EXCEPT:
0%
As a general rule, what percentage of personal life insurance premiums is allowed to be deducted from a person's federal income tax liability?
Tax-deferred
Cash value in a whole life policy accrues interest:
Edward pays the gift tax.
Edward purchases a life insurance policy as a gift for his aunt. Which of the following is true?
$10,000
Erin bought a $100,000 whole life insurance policy. When she is 65 she decides to surrender the policy for its cash value of $60,000. Of the cash value, $50,000 is premiums. How much of Erin's cash surrender is taxable?
Only the interest is taxed.
Fred is receiving life insurance death benefits in fixed-amount installments. How will his income benefits be taxed?
All of the above
How are personal life insurance dividends taxed?
Social Security
OASDI is also referred to as:
Interest on life proceeds paid in installments
Premiums for life insurance are not tax-deductible and death benefits, received in a lump sum, are not taxable. Which of the following is taxable?
65
Social Security disability benefits are payable to a covered disabled worker until the age of:
Premiums are paid with after-tax dollars; proceeds received in a lump-sum are received tax-free; proceeds received in installments are taxable only to the extent of interest earned.
What is the general rule for taxation of personal life insurance?
Withdrawals and policy loans are taxed as ordinary income.
When a life insurance policy becomes a MEC, what are the tax consequences?
Premiums paid over a seven-year period cannot exceed the total level annual premiums for a paid-up policy in seven years.
Which of the following best describes the seven-pay test?
Dividends are not taxable.
Which of the following best describes the tax consequences of life insurance dividends?
Personal life insurance proceeds received in installments are reinvested in an annuity, which grows interest.
Which of the following best explains why personal life insurance policy proceeds received in installments are subject to tax?
All of the above
Which of the following correctly describes Social Security survivors benefits for a covered worker who is fully insured?
60
After a surviving spouse is in their blackout period, the earliest age they can begin to receive survivors benefits is:
Their total PIA
After the 5-month waiting period, Social Security disability benefits are payable to the disabled covered worker in the amount of:
When a charity is made a beneficiary of a personal life insurance policy, premiums are tax-deductible.
All of the following statements are true regarding the taxation of personal life insurance used for charity, EXCEPT:
When a personal life insurance policy endows, the amount of any unpaid loan plus interest is not deducted from the policy proceeds.
All of the following statements regarding policy loans from personal life insurance policies are true, EXCEPT:
Quarters of credit
An individual's Social Security insured status is based on their:
OASDI
Social Security is also referred to as:
Not taxable
Life insurance death benefits received in a lump-sum are:
Death benefits received in a lump-sum are not taxable.
If life insurance death benefits are received in one lump-sum, what are the tax consequences?
Premiums paid in a seven-year period cannot be more than the total annual premiums in a seven-year paid-up policy.
The seven-pay test is best described as:
Primary insurance amount (PIA)
What is the basis for Social Security retirement benefits?
Quarters of credit
What is the basis for a person's Social Security insured status?
Quarters of credit
What is the basis for established Social Security insured status?
62
What is the earliest a person can retire and begin to receive Social Security retirement benefits?
All of the above
Which of the following employees would not be covered by Social Security?
David surrenders his joint life insurance policy. It has a total cash value of $100,000, but he only paid $80,000 in premiums. Therefore, $20,000 is taxable.
Which of the following examples correctly demonstrates how personal life insurance policy surrenders are subject to tax?
The retiree's sex
Which of the following factors does not affect how much a retiree will receive for Social Security monthly retirement income benefits?
What is the earliest age at which an individual can begin to receive Social Security retirement benefits?
6.20%
Bobette works as a clerk at SAV-MORE convenience store. What is the percent of Social Security payroll tax deducted from her paycheck?
80% of their PIA
How much will a covered worker receive from Social Security retirement benefits if the worker was born in 1960 and retires at age 62?
A Social Security currently insured individual has:
Fully
A covered worker must be ______ insured to receive Social Security retirement benefits.
40 quarters of credit
A fully insured individual must have which of the following?
Receive the benefit that is larger
A person who is eligible to receive both spousal and retirement benefits from Social Security will:
Not taxable
A policy loan on a whole life policy is:
How long a covered worker has worked throughout their life
How are Social Security benefits determined?
Proceeds are tax-free if taken in a lump-sum, but subject to tax on the interest portion if taken in installments.
How are group life insurance benefits taxed?
Employer-paid premiums are tax-deductible as a business expense, but employee-paid premiums cannot be deducted from taxes.
How are premiums for group life insurance taxed?
Policy loans and withdrawals are taxed as ordinary income.
How is a life insurance policy affected when it becomes a MEC?
All throughout retirement
How long is the reduction in Social Security retirement benefits effective for a person who retires early?
62
What is the earliest age at which an individual can begin to receive Social Security retirement benefits?
In month 6 of their disability
What is the earliest month a covered worker may begin to receive Social Security disability benefits?
67
What is the full Social Security retirement age for a person born after 1960?
The whole cash value surrender is taxable
Which of the following statements is incorrect concerning the federal income tax treatment of life insurance?
a. Only annuity premiums are taxable. Premiums are not tax-deductible.
Which statement most accurately describes the tax consequences on premiums for individual life insurance and annuities?
Group life insurance
Which type of life insurance policy allows an employer to deduct premium payments as an ordinary business expense for tax purposes?
The gift-giver
Who pays tax on personal life insurance given as a gift?
5 months
How long is the waiting period for disability benefits under Social Security?
All of the above
In order to obtain fully insured status, a covered worker must accrue one quarter of coverage each calendar year after the age of 21 for a total of 40 quarters and minimum of six quarters, upon the earliest of:
Primary insurance amount
The amount of Social Security retirement benefits are based on an individual's:
Interest is tax-deferred.
What are the tax consequences of interest growth on the cash value in a whole life policy?
They are not tax-deductible.
Which of the following is generally true regarding premiums for individually-purchased life insurance and annuities?
Cash value grows tax-deferred, but may be subject to taxation upon withdrawal.
Which of the following is true regarding the taxation of universal life insurance policies?
1/2 his mother's PIA
How much will an unmarried child, Joe, age 19, in his last year of high school, receive from Social Security if his mother becomes totally and permanently disabled?
Alex pays the gift tax.
If Alex buys a life insurance policy as a gift for his wife, what are the tax consequences?
Kenny must pay the employer and employee's tax portions.
Kenny is self employed. He owns a book bindery. Which statement accurately describes his Social Security tax obligation?
Lump-sum death benefit paid to the widow and eligible children of the deceased covered worker.
Which of the following correctly describes Social Security Survivors benefits payable if a covered worker is currently or fully insured upon death?
The disability must have lasted or will last for at least 6 full months or be expected to end in death.
Which of the following is false regarding eligibility for Social Security disability benefits?
Under which insured Social Security insured status are most benefits paid?
How much is the Social Security disability benefit payable to a covered worker?
The difference between the cash value and the premiums paid is taxable upon policy surrender ($90,000 - $83,000 = $7,000). The correct answer is: $7,000
Jacob has a $150,000 whole life policy. He decides to surrender his policy at the age of 63 when his cash value totals $90,000 of which $83,000 Jacob has paid in premiums. What portion of Jacob's cash surrender is taxable?
1/2 Joe's PIA
Joe becomes totally disabled. How much will Social Security pay Joe's wife, who relies on child support payments from Joe, to care for their 12-year twins?
Interest is taxed.
June is receiving life insurance policy proceeds in fixed-amount installments. What are the tax consequences of her benefits?
Luka will receive the larger of the two benefits.
Luka is eligible to receive both spousal and retirement benefits. Which of the following is true?
Maria will have to pay the employer and the employee's tax portions.
Maria is self-employed. She owns her own ballet studio. Which of the following is true regarding her portion of Social Security tax?
Maria and her employer share in the cost of her group life insurance premiums. Which of the following is true?
Not taxable
Cumulative; do not need to
Social Security quarters of coverage earned are based on ________ quarters worked, and ________ be earned consecutively.
Monthly payments to a grandchild of the covered worker in the amount of the covered worker's PIA
Social Security retirement benefits include all of the following, EXCEPT:
$0
Susan has a $500,000 permanent life insurance policy. She has paid $200,000 in premiums, and the policy has a cash value of $216,000. If Susan dies, her beneficiary will pay taxes on:
Only the employer's portion of the premiums is tax-deductible.
Tom and his employer split the cost of group life insurance premiums. What are the tax consequences?