Federal Tax Considerations for Life Insurance and Annuities

Which of the following describes the taxation of an annuity when money is withdrawn during the accumulation phase?

Withdrawn amounts are taxed on a last in, first out basis.

Which concept is associated with "exclusion ration"?

Annuity payments

An insured decides to surrender his $100,000 Whole Life policy. The premiums 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

An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay?

25% tax on the amount not distributed as required

When contributions to an immediate annuity are made with before-tax dollars, which of the following is true of the distributions?

Distributions are taxable.

Which of the following terms is used to name the nontaxed return of unused premiums?

Dividend

Which of the following is used to determine the annuity amounts that are not taxable?

Exclusion ration

An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true?

He will have to pay a penalty if he is younger than 59.5.

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

Interest only

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

Modified endowment contract.

Death benefits payable to a beneficiary under a life insurance policy are generally.

Not subject to income taxation by the Federal Government.

What part of the Internal Revenue Code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences?

Section 1035 Policy Exchange

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

Which of the following best describes taxation during the accumulation period of an annuity?

Taxes are deferred.

What method is used to determine the taxable portion of each eannuity payment?

The exclusion ration