Ch 8: Tax Considerations Flashcards
Interest earned is ________ taxable
Always
How is cash surrender value taxed?
If a policyowner were to cash surrender the policy, some of the cash value received may be subject to ordinary income tax. Only the amount in excess of the cost basis will be taxed. (Cost basis = total premium paid - dividends paid less and loans and riders,etc)
How are accelerated benefits (rider) taxed?
Treated in the same manner as death benefits. They are received tax free is the insured is terminally ill and is expected to die within 12 months or the benefits are used to pay for needed care due to the illness.
What is a 1035 exchange?
If a life policy is exchanged for another like-kind policy, there is no current gain or loss (not subject to any tax)
What are acceptable transactions under 1035 exchanges?
Life for another life policy
Life for an annuity contract
Annuity for another annuity contract
Ed has an (non qualified) annuity of $50,000. He receives $4,000 per year. What’s taxable?
$2,000. Always Ed, always half.
Dividends on ____________ policies by mutual companies are not taxed.
Participating
A qualified annuity is funded with pre-taxed dollars. Which portion is taxed?
The entire amount (principal plus interest) is taxable.
Premiums for individual life insurance policies are considered what kind of expenses and are they tax deductible?
Personal expenses and are not tax deductible.
