5 - Life Insurance Premiums, Proceeds, and Beneficiaries

A life insurance company just paid a $100,000 death benefit to a beneficiary. When the insured died, the cash value was $15,000 and the total premiums-paid equaled $10,000. How much of the proceeds will be added to the beneficiary's gross income for federal income tax purposes?

$0

T and S are named co-primary beneficiaries on $500,000 Accidental Death and Dismemberment policy insuring their father. Their mother was named contingent beneficiary. Five years later, S died of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit will the mother receive?

$0

A man dies and is insured by a Whole Life insurance policy of $50,000 which has a cash value of $15,000. The primary beneficiary will receive how much?

$50,000

K has a life insurance policy where her husband is beneficiary and her daughter is contingent beneficiary. Under the Common Disaster clause, if K and her husband are both killed in an automobile accident, where would the death proceeds be directed?

daughter

Which of these statements is INCORRECT regarding the federal income tax treatment of life insurance?

entire cash surrender value is taxable

D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?

ex-wife

Death benefits from a life insurance policy are normally considered to be:

exempt from federal income tax

Which tax is normally associated with death?

federal estate tax

Which settlement option makes minimum guaranteed dollar payments over a stated number of years?

fixed-period

How much is normally paid to a policyowner in life (viatical) settlement?

less than the face amount

A preferred life insurance premium can be obtained by an applicant exhibiting all of these factors, EXCEPT:

living in the mountains

All of these settlement options would satisfy the conditions of a spendthrift clause, EXCEPT:

lump-sum payment

A policyowner is allowed to pay premiums more than once a year under which provision?

mode of premium

Which statement is true regarding a minor beneficiary?

normally, a guardian is required to be appointed in the Beneficiary clause of the contract

On a life insurance policy, who is qualified to change the beneficiary designation?

policyowner

K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?

proceeds will be paid to p's estate

The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is?

the cost

J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct?

the gross premium is higher on monthly payment mode as compared to being paid annually

The Economic Benefit Doctrine requires that any benefit granted to an individual that has economic or financial value be included as compensation for income tax purposes in the:

year the benefit is granted

How long do most states allow an insurance company to delay the payment of a cash surrender under the Delayed Payment provision?

6 months