Life & Health Chapter 14

The benefits of an individual Disability Income Policy will be taxed in the following manner: Choose one answer. a. None of the benefits are taxed b. State income tax c. Income tax d. FICA tax

a. None of the benefits are taxed Benefits received from an individual Disability Income Policy are not subject to taxation.

Steve had incurred a significant amount of medical expenses last year after being hospitalized, and due to injuries sustained by his son. Steve's total out-of-pocket cost was $10,000. With an adjusted gross income of $100,000, how much of these expenses could Steve deduct if he itemized deductions? Choose one answer. a. $10,000 b. $2,500 c. $0 d. $7,500

b. $2,500 Steve can deduct only that portion of expenses that exceed 7.5% of his adjusted gross income ($100,000AGI x 7.5% =$7,500; $10,000 in costs- $7,500=$2,500 excess).

Under which business-related use of Disability Income Insurance would the premiums be tax deductible? Choose one answer. a. Entity purchase agreement in a partnership. b. Business Overhead Expense Coverage. c. Disability coverage on each partner of a partnership. d. Key Person Disability Income.

b. Business Overhead Expense Coverage. Business Overhead Expense Coverage is deductible as the plan is used to offset expenses if the owner of the business were to become disabled. Any benefits received would be taxable to the owner and must be reported as income.

Which statement is true regarding taxation? Choose one answer. a. The benefits received from a group Accidental Death and Dismemberment Policy are taxable to the recipient. b. The benefits received from a group Disability Income Policy being paid in full by the employer are fully taxable as income to the employee. c. The benefits received from a personally owned Long-Term Care Policy are usually subject to Federal Income Tax. d. The benefits received from a personally owned Disability Income Policy are subject to Federal Income Taxes.

b. The benefits received from a group Disability Income Policy being paid in full by the employer are fully taxable as income to the employee. All statements are false; except, the benefits received from a group Disability Income Policy being paid in full by the owner would be fully taxable as income to the employee

Which is true regarding the advertising of Accident and Sickness Insurance? Choose one answer. a. Advertisements may use words or phrases such as 'all', 'complete', 'comprehensive'. b. When insurers advertise that a group endorses a certain health product, the public must be made aware of any control the insurer may have regarding the group. c. Sales talks and personal testimonials are not considered advertising. d. When an agent misleads the public in an advertisement, only the agent is accountable.

b. When insurers advertise that a group endorses a certain health product, the public must be made aware of any control the insurer may have regarding the group. Both agent and insurer are accountable. Such words as all, complete, or comprehensive are not allowed. Sales talks and testimonials are considered advertising.

Which of the following is a prohibited form of advertising? Choose one answer. a. When an insurer excludes coverage for preexisting conditions, an advertisement of the policy that implies that the applicant's medical condition or history will not affect eligibility or payment. b. An advertisement that uses the words 'only', 'just', 'merely', 'minimum', or similar words to imply a minimal imposition of restrictions and reductions. c. All of the listed choices are prohibited. d. Advertisements for Medicare Supplements containing information that create undo anxiety in the minds of the insureds.

c. All three responses reflect prohibited forms of advertising.

Amy owns her own individual Medical Expense Policy. Which of the following is true about taxation circumstances? Choose one answer. a. If she itemizes deductions and her medical expenses exceed 10% of her adjusted gross income, the portion exceeding that may be deducted. b. Benefits she received from her policy are taxable. c. In most cases, the premiums for Medical Expense policies are not deductible. d. When itemizing deductions, the deduction for reimbursed medical expenses normally applies to premiums that are paid for medical expenses.

c. In most cases, the premiums for Medical Expense policies are not deductible. The answer 'the premiums for Medical Expense policies are not deductible' is the only correct response. Expenses that exceed 7.5% may be deducted; benefits received are not taxable; and the deduction for non-reimbursed medical expenses normally applies.

Jay receives an annual disability benefit of $10,000. His employer contributed 75% of the premium. How much of Jay's benefit is subject to income tax? Choose one answer. a. $2,500 b. $10,000 c. None d. $7,500

d. $7,500 Jay is covered under a contributory plan in which the employer is contributing 75% of the premium, thus 75% of the $10,000 benefit ($7,500) is subject to income tax.