Chapter 15 Federal Tax Considerations For Life Insurance And Annuities

15 Questions | Total Attempts: 2272

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Chapter 15 Federal Tax Considerations For Life Insurance And Annuities

Welcome to a helpful quiz on federal tax considerations for life insurance and annuities, where you’ll be able to learn all about the topic with questions on modified endowment contracts, policyholders, tax deduction and more with several examples to work with. What do you know so far?


Questions and Answers
  • 1. 
    If there is a material change in a Modified Endowment Contract:  
    • A. 

      MEC reverts to a Life insurance policy

    • B. 

      The required premium will increase

    • C. 

      The insurer must notify the Department of Insurance

    • D. 

      A new 7-pay test is required

  • 2. 
     The Federal government allows employers to take a tax deduction for premium contributions they make to a group medical expense plan if:
    • A. 

      The contributions to the plan exceed 10% of the company’s gross income

    • B. 

      If the contributions represent responsible business expenses

    • C. 

      The medical benefits received by the employees are taxable

    • D. 

      They are contributing 100% of the plan costs

  • 3. 
    Medical expense premiums paid by the individual policyholder are deductible as a medical expense, to the extent that when added to all other unreimbursed medical expenses, the total exceeds ____ of the taxpayer’s adjusted gross income
    • A. 

      0.7%

    • B. 

      7.5%

    • C. 

      0.6%

    • D. 

      0.5%

  • 4. 
     Which of the following is not a 401(k) arrangement?  
    • A. 

      Pure salary

    • B. 

      Bonus plan

    • C. 

      Thrift plan

    • D. 

      Sheltered plan

  • 5. 
    Bob had $500,000 of life insurance at work; he has an additional $40,000 life insurance policy the company purchased on all employees.  His wife is the primary beneficiary and their four children are contingent beneficiaries.  Upon Bob's death, what are the tax consequences to his beneficiaries?
    • A. 

      All premiums paid may be deducted from the face valuebefore taxation.

    • B. 

      The $40,000 will be taxed since the premium was tax deductible by the employer

    • C. 

      The $540,000 lump sum proceeds will be received income tax free.

    • D. 

      The contingent beneficiaries must pay income taxes on all proceeds they recieve.

  • 6. 
    The payment of an accelerated death benefit is not taxable income if the accelerated death benefit payment is qualified.  The benefit qualifiers are all the following, except:
    • A. 

      The ratio of the policycash value before and after the benefit payment must at least be equal to the ratio of the death benefit before and after the benefit payment.

    • B. 

      The amount of benefit must at least be equal to the present value of the reduced death benefit remaining afterpayment of the accelerated benefit.

    • C. 

      The benefit amount is determined similarlyto that of an annuity, taking into consideration the amount of months remaining for the insured.

    • D. 

      The prognosis of a physician must be less than 12 months

  • 7. 
    What is false regarding the taxation of an annuity if the annuitant should die during distribution?
    • A. 

      Interest earned during the accumulation periodis not taxable.

    • B. 

      If the annuitant chose the life income option, nothing is included in the gross estate.

    • C. 

      If annuity paymentsare to continue to another person upon an annuitant's death, the survivor's proceeds are includedin the gross estate.

    • D. 

      If a lump sum goes to a beneficiary, only the amount in excess of the policyowner's investmentis included in the beneficiary's gross income for federal tax purposes.

  • 8. 
    The 1035 Exchange states no gain or loss will be recognized on the exchange of contracts by the same insurered.  This is true for each situation described below, except:
    • A. 

      An annuity contract is exchanged for another annuity contract

    • B. 

      A Whole life Policy is exchanged for a Universal Life Policy

    • C. 

      An Endowment Policy is exchanged for another Endowment Policy that provides for payments on or before the original endowment date.

    • D. 

      An Endowment Policy is exchanged for a Whole Life policy.

  • 9. 
    Which of the following is an advantage of a 403(b) Annuity?
    • A. 

      All monies invested and the accumulationof interest is tax- deferred until recieved.

    • B. 

      They are profit- sharing plans.

    • C. 

      Employees of states, counties and municipalities may reduce thier pay bya specified amount to invest in one or more 403(b) investments.

    • D. 

      Distributions are tax exempt.

  • 10. 
    Kacie sucessfully owned and operated a business for 10 years and have decided to plan for her retirement.  She wants a qualified plan to maximize the tax advantages.Her best option is
    • A. 

      Simplified Employee pension

    • B. 

      HR-10 Plan

    • C. 

      Profit Sharing plan

    • D. 

      401 (k) Plan

  • 11. 
    Richard is a teacher at the local school.  His employeer has agreed for the past 3 years to reduce his pay by a specified amount and invest it for him.  He has a
    • A. 

      401 (k)

    • B. 

      Section 457

    • C. 

      TSA

    • D. 

      HR 10

  • 12. 
    What life insurance event is not taxable?
    • A. 

      Interest income only

    • B. 

      Monthly income of principle and interest

    • C. 

      Dividends recieved exceed the premiums paid by $700

    • D. 

      Lump sum death benefit recieved by the beneficiary

  • 13. 
    What is not an advantage of gifting with life insurance?
    • A. 

      The entire gift is guaranteed even if only onepremium is paid

    • B. 

      The IRS needs very little documentation

    • C. 

      The size of the giftis determined by the size of the death benefit

    • D. 

      All of these are advantages

  • 14. 
    A tax on the right of heirs to recieve  property from a deceased person is a(n)
    • A. 

      Federal Income tax

    • B. 

      Inheritance Tax

    • C. 

      Estate tax

    • D. 

      None of the Above

  • 15. 
    Janelle is asking you, an agent, about any taxation issues related to his $100,000 personal Whole Life policy.  You find that her understanding  is correct on all points, except:
    • A. 

      Since her policy is a personal policy, she cannot deduct the premiums she pays for the policy.

    • B. 

      Annual increases in the policies cash value are not taxable at the time they credited to the policy

    • C. 

      The interest that she pays on personal loans that she might take from the policy is tax deductible for the life of the loan.

    • D. 

      Upon surrender of the policy, she will be taxed on any amount by which the cash value at the time of surrendershould exceed the premiums paid to date of surrender.

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