6.1 Federal Tax Consideration for Life Insurance Flash Flashcards

1
Q

When would life insurance policy proceeds be included in the insured’s taxable estate?

A

When there is an incident of ownership at the time of death

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why are dividends in life insurance policies not taxable?

A

Dividends are not considered income for tax purposes; they are a return of unused.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the name of an overfunded life insurance policy

A

a Modified Endowment Contract (MEC)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Is the death benefit a life insurance policy taxed to the beneficiary if its received as a lump sum?

A

No, lump-sum benefits are received tax-free.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the general taxation rule for the death benefits payable to the beneficiary of a life insurance policy?

A

Death benefits are generally not subject to income taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

according to the taxation rules of life insurance policies, how are cash value increases taxed?

A

cash value growth is tax-deferred.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Upon surrender of a life insurance policy, what portion of the cash value will be taxed?

A

Only the portion in excess of the premium paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the main purpose of the 7-pay Test?

A

to determine if a life insurance policy is a Modified Endowment Contract (overfunded)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What portion of a nonqualified annuity payment would be taxed?

A

Interest earned on principal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

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

A

from the trustee to trustee

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion (if any), will be taxed?

A

Interest only

How well did you know this?
1
Not at all
2
3
4
5
Perfectly