Life section 6

If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?

It is only taxable if the cash value exceeds the amount paid for premiums.

Which of the following statements is TRUE concerning whole life insurance? A) Dividend interest is not taxable B) premiums are tax-deductible C) policy loans are tax-deductible D) Lump sum death benefits are not taxable

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 generally

Not subject to income taxation by the Federal Government

In which of the following instances would the premium be tax deductible?

Premiums paid by an employer on a $30,000 group term life insurance plan for employees

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

An individual has been diagnosed with Alzheimer's disease. He is insured under a life Insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits? A) The entire living benefit is considered taxable income B) A portion of the benefit up to a limit is tax free: the rest is taxable income C) principle is tax free, but interest is taxed D) The entire benefit will be received tax free

A portion of the benefit up to a limit is tax free; The rest is taxable income

Which of the following is true regarding taxation of dividends in participating policies? A) dividends are taxable in some life insurance policies and no taxable in others B) dividends are considered income for tax purposes C) dividends are not taxable D) Dividends are taxable only after a certain amount is accumulated annually

Dividends are not taxable.

Life insurance death proceeds are

Generally not taxed as income

In life insurance policies, cash value increases

Grow tax deferred.

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?

Interest only

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

Which of the following is true regarding taxation of accelerated benefits under a life insurance policy? A) they are always taxable to chronically ill Ed insured B) they are always taxed C) there is a 10% penalty for early distribution of the death benefit D) they are tax free to terminally ill insured

They are tax free to terminally ill insured

Which of the following statements regarding the taxation of modified endowment contracts is false? A) withdrawals are not taxable B) Distributions before age 59 1/2 incur a 10% penalty on policy gains C) policy loans are taxable distributions D) accumulations are tax deferred

Withdrawals are not taxable