Federal tax

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 In this example, the difference between the premiums paid ($15,000) and the cash value ($18.000) is $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 If $100,000 of life insurance proceeds were used in a settlement option paying $13,000 per year for 10 years, $10.000 per year would be income tax free (as principal) and $3,000 per year would be income taxable (as interest).

What is the penalty for IRA distributions that are below the required minimum for the year?

50% If there are no distributions at the required age, or if the distributions are not large enough, the penalty is 50% of the shortfall from the required annual amount.

If an annuitant dies during the accumulation period, what benefit (if any) will be included in the annuitant's estate?

Accumulated cash value

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.

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

Life insurance death proceeds are

Generally not taxed as income.

In life insurance policies, cash value increases

Grow tax deferred.

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

Modified endowment contract.

An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would the interest accumulated in the annuity NOT be taxable?

Spouse

What type of annuity activity will cause immediate taxation of the interest earned?

Surrendering the annuity for cash One-sum cash surrenders give rise to immediate taxation of the interest earned.

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. If a policyowner transfers or gives away a life insurance policy within 3 years prior to his/her death, the entire face amount of the policy will be included in his or her taxable estate.

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.