Taxation of Life Insurance and Annuities -Premiums and Proceeds

50% tax on the amount not distributed as required

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 pa?.

$3,000

If $10,000 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?

A modified Endowment Contract

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

Grow tax deffered

In life insurance policies, cash value increases

If determines if the insurance policy is an MEC

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

1035 exchange

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

Spouse

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

$3,000

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?

50%

What is the penalty of IRA distributions that are below the required minimum for the year?

The exclusion ratio

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

Taxes are deferred

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

Withdrawals are not taxable

Which of the following statements regarding the the taxation of Modified Endowment Contracts is FALSE?