Chapter 17 T/F

Question 1

The 10 percent penalty will apply to the total amount of any withdrawal from a MEC.

Answer 1

False. The 10 percent penalty will apply only to that portion of a withdrawal from a MEC that is subject to the federal income tax; that is, the portion attributable to the gain in the policy on a LIFO basis. In addition, the penalty tax is generally applicable to gains withdrawn from a MEC before the policyowner reaches age 59 1/2. Moreover, it does not apply to payments attributable to disability or annuitized payments.

Question 2

A life policy death benefit increase linked directly to the consumer price index will not be treated as a material change under the MEC rules.

Answer 2

True

Question 3

All MECs issued by the same insurer to a policyowner during any calendar year will be treated as one policy for purposes of the MEC tax rules.

Answer 3

True