Annuities, Variable Products, and the Federal Tax Considerations CH 6) Flashcards
Annuitant
The one receiving the Annuity and on whose life expectancy the rates are figured.
Annuity
1) An amount of money, payable monthly or yearly, which liquidates a financial asset. 2) An agreement by an insurer to make periodic payments that continue during the survival of the annuitant(s) or for a specified period. Annuities are also accumulation vehicles that function much like savings accounts.
Beneficiary
A person or entity who may become eligible to receive, or is receiving, benefits under an insurance plan, other than as a participant.
Deferred Annuity
An Annuity on which payments to the annuitant are delayed until a specified future date.
Fixed Annuity
An annuity whose accumulated proceeds are guaranteed by both the insurer and various state insurance funds.
Joint and Survivorship Life Annuity
An annuity calculated on the joint life expectancies of the annuitant and another person (usually a spouse). This annuity will pay out until the death of the last surviving annuitant.
Joint Life Annuity
Payments continue to two annuitants for only as long as both live. On the death of either one, payments stop.
Loss
An unpredictable reduction in the quality, quantity, or value of something- for example, bodily injury, disease, property damage, physical disappearance of property, incurred expenses, death, etc.
Participating Policy
Insurance that pays policy dividends. Issued by a mutual company. Sometimes called par.
Period Certain Annuity
A annuity with a payout option in which funds are liquidated over a set period of time.
Prospectus
A document that describes in detail characteristics of an investment for the evaluation of potential buyers.
Pure Life/Straight Life Annuity
An annuity with a guaranteed payout for the life of the annuitant.
Refund Life Annuity
Provides Annuity payments for the annuitant’s lifetime with the guarantee that, in no event, total income will be less than the purchase price of the contract. If the annuitant dies before receiving this amount, the difference is paid to a named beneficiary.
Single Premium Annuity
An Annuity purchased with one lump sum payment.
Surrender
Withdrawing the cash value of a policy and surrendering the policy to the insurer.
Cash Refund Annuity
A life annuity contract providing that, upon the death of the annuitant, the company will pay the difference between the value which was annuitized and the income payments made to a designated beneficiary. This may be done as a continuation of the income payments or in a lump sum.
When the annuitant under a life only annuity dies, what is the amount of the property interest in the contract that will be includable in the annuitant’s gross estate?
Zero; Payments under a life only annuity cease at the death of the annuitant. Any remaining value in the contract is surrendered to the insurance company. No amount is includable in the annuitant’s estate for tax purposes.
Single premium immediate life annuity with a 10 year period certain will pay:
An income for as long as you live, but in no event less than 10 years. !0 years (120 payments) are guaranteed to be paid out to someone, even if the annuitant dies.
At retirement age, an insured surrenders an individual life insurance policy and requests a lump sum distribution of the cash value. When the distribution is received, what will the tax consequences be?
The gain in the policy is taxable as ordinary income
What are the tax implications to the beneficiary of a 20-pay life policy with a $300,000 face value with $30,000 in premiums paid and current cash value at $5,000?
Income tax free on $300,000.
As a death benefit to the beneficiary, no income tax is due on the full face amount of the policy.
Life Insurance death benefits may be subjected to
Federal estate tax.
If a life insurance policy is transferred to another person in exchange for valuable consideration, then the death proceeds may:
Lose their income tax exempt status
What is the minimum age when one can withdraw funds from a Health Savings Account (HSA) for non-medical expenses WITHOUT penalty?
65
In a key employer disability agreement, in the event of the employee’s total disability,
payments made by the insurer to the employer are tax free.
In a key employee disability agreement, the employer purchases an insurance policy to protect the business from a key employee’s disability and the effect that could have on the business’s cash flow. The employer is the owner, premium payor, and beneficiary on this policy. The premiums are not deductible, so the benefit is income tax-free.
Employees who contribute to the employer group medical and dental insurance plan may
deduct a portion of their medical and dental expenses which exceed 10% of their adjusted gross income
Disability income benefits received are NOT subject to income taxes if the benefits are paid
under a policy for which the insured paid the premiums.
Benefits for an accidental death life insurance benefit are
income tax-free
What premium for products can be considered in the total to meet the 10% tax deduction rule?
medical and Long term care
Premiums paid by the employer for a group Long Term Care policy for employees i
tax deductible
Abe owns a long-term care plan. How is he taxed on the purchase of this personal insurance?
only the portion over 10% AGI (adjusted gross income), when combined with unreimbursed medical expenses, is tax-free, but benefits to a high limit are tax free
Business expenses that are tax deductible to the employer do not include
disability buy/sell agreement
Annuities cannot be classified based on
the residence of the applicant
What annuity option will pay the beneficiary of the annuity the difference between the value of the annuity prior to annuitization, if a single premium immediate annuity, and the total amount of annuity payments received by the annuitant while they were alive?
life with cash refund.
An individual has purchased an annuity to provide retirement income. The annuitant is concerned about losing the value of the annuity if he should die soon after starting payments. What annuity option should the annuitant choose to be sure he or his beneficiary receives the total value of the annuity?
a cash refund annuity.
Barbara buys an annuity that has a guaranteed rate of interest but could earn higher interest based on the current rates paid by the insurer. Barbara has purchased a
Fixed annuity
State and local government employees may defer income for retirement into Section ________ plans.
457.
Section 457 describes the qualified deferred compensation plans available to state and local government workers
Sole proprietors may deduct what percentage of personal medical insurance premiums?
Sole proprietors and partners have been able to deduct 100% of personal medical insurance premiums covering themselves and dependents.
When can someone with a Roth IRA withdraw gains income tax free before the age of 59 1/2?
A Roth IRA that has been held at least five years may make income tax-free payments in the following situations: the Roth IRA owner is past age 591/2, deceased, disabled, or the funds are used for a first-time home or qualified higher education expenses.
