Chapter 7

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

spouse

A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called

1035 exchange

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

Modified Endowment Contract

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

Accumulated cash value

In direct rollover, how is the money transferred from one plan to the new one?

From trustee to trustee

What is the main purpose of the seven-pay Test?

It determines if the insurance policy is an MEC.

During the accumulation period in a non-qualified annuity, what are the tax consequences of a withdrawal ?

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 1/2

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

Taxes are deferred

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 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 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

A premature distribution from a Roth IRA made before the individual reaches age 59 1/2 is subject to a 10% penalty tax unless the distribution was for

At first-time home purchase

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

Surrendering the annuity for cash