LIFE INSURANCE
Which of the following premium modes would result in the highest annual cost for an insurance policy?
Monthly
Life insurance premium rates are based upon the anticipated number of individuals within a group who will die within a specified period of time, as indicated on
Mortality tables
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.
The consideration paid to the insurance company for life insurance protection is called a(n)
Premium
An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover?
$10,000, no tax consequence
When the owner of a $250,000 life insurance policy died, the beneficiary decided to leave the proceeds of the policy with the insurance company and selected the Interest Settlement Option. If at the time of withdrawal the interest paid was $11,000, the beneficiary would be required to pay income tax on...
$11,000
An insured decides to surrender his $100,000 Whole Life policy. The premiums paid 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 The difference between the premiums paid and the cash value would be taxable. In this example, the difference between the premiums paid ($15,000) and the cash value ($18,000) is $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?
50% tax on the amount not distributed as required When immediate annuities are used to pay IRA benefits distributions must begin no later than age 70 1/2 in order for the annuitant to avoid penalties. The penalty of 50% of the shortfall from the required annual amount
Which of the following terms is used to name the nontaxed return of unused premiums?
Dividend The return of unused premiums is called a dividend. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums.
What stipulates that if an employee receives property or other benefits in lieu of income, such property or benefits would have been taxable income had they been received in cash; therefore, an economic benefit has been received and will be taxed accordingly?
Doctrine of economic benefit
The factor added to the net premium to cover the costs of the insurer in obtaining and maintaining the business is called
Expenses aka loading
B just bought a new car, which he anticipates will be paid for 4 years from now. He also wants to buy a life insurance policy but is financially limited until the car is paid off. Which of the following types of policies would be best for B?
Modified Life It charges a lower premium for the first few policy years and then a higher level premium for the remainder of the life of the policy.
Which of the following is NOT true regarding policy loans?
Money borrowed from the cash value is taxable
Which type of insurance policy pays dividends if there are excess premiums over the cost of providing insurance?
Participating
During the first seven years of a minimum deposit policy, how many of the 7 annual premiums must be paid from funds other than policy loans?
4
What is the penalty for IRA distributions that are below the required minimum for the year?
50% If there are no distributions at the required age, or if the distributions are not large enough, the penalty is 50% of the shortfall from the required annual amount
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
What type of whole life insurance policy has premiums that are adjusted so that during the first years of the policy, the premiums are lower than those of a straight whole life policy, and in subsequent years the premiums are higher than those of a straight whole life policy?
Modified life
1035 exchange
A nontaxable exchange of cash value life insurance or an annuity on the same life
If an annuitant dies during the accumulation period, what benefit (if any) will be included in the annuitant's estate?
Accumulated cash value
Who can make a fully deductible contribution to a traditional IRA?
An individual not covered by an employer-sponsored plan who has earned income
When must an IRA be completely distributed when a beneficiary is not named?
December 31 of the year that contains the fifth anniversary of the owner's death
If an insured changes his payment plan from monthly to annually, what happens to the total premium?
Decreases
Which of the following policies is characterized by a provision where the premiums are lower in the early years of the policy and increase over time to a point where they become level for the remained of the policy?
Graded premium whole life
MORTALITY - INTEREST + EXPENSE =
Gross premium
In life insurance policies, cash value increases...
Grow tax deferred Generally life insurance cash values are only income taxed if the policy is surrendered (totally or partially) and the cash value exceeds the premiums paid.
What is the main purpose of the Seven-pay test?
It determines if the insurance policy is an MEC.
In mortified life policies, what happens to the premium?
It is level at the beginning and increases after the first few years
A nonpayment of premiums may result in a
Lapsed Policy
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
An insured's life insurance policy includes an automatic premium loan provision, which he uses three years after he buys his policy. What will happen if he never repays it?
The face value of the policy will be reduced at the maturity date
When would life insurance policy proceeds be included in the insured's taxable estate?
When there are any incidents of ownership at the time of death
The mode of premium payment
is defined as the frequency and the amount of the premium payment.
Which of the following statements is TRUE concerning whole life insurance?
Lump-sum death benefits are NOT taxable
Mortality tables are statistical tables used by life insurance companies to help predict
Life expectancy and the death rates for specific groups of individuals
